INNOVATING FOR LIFE ™
R
O
G
E
R
S
C
O
M
M
U
N
I
C
A
T
I
O
N
S
I
N
C
.
2
0
0
8
A
N
N
U
A
L
R
E
P
O
R
T
T
S
X
:
R
C
I
N
Y
S
E
:
R
C
I
ROGERS.COM
ROGERS COMMUNIC ATIONS INC . AT A GL ANCE
DELIVERING RESULTS IN 2008
DOUBLE-DIGIT
REVENUE G ROW TH
FREE C ASH FLOW
GROW TH
DIVIDEND
INCREASES
GAIN HIGHER VALUE
WIRELESS S UBSCRIBERS
What We Said: Leverage networks,
channels and brand to deliver 11%
or greater revenue growth.
What We Said: Deliver 5% or
greater growth in consolidated
free cash flow.
What We Did: 12% consolidated
revenue growth with Wireless,
Cable Operations and Media all
growing at double-digit rates.
What We Did: Generated a 10%
increase in free cash flow growth.
What We Said: Increase dividends
consistently over time.
What We Did: Doubled annual
dividend per share from $0.50 to
$1.00 in 2008.
What We Said: Continued strong
wireless subscriber growth but with
a focus on postpaid subscribers.
What We Did: Added 604,000
wireless subscribers with 89% of
net additions being on higher value
postpaid plans.
GROW W IRELESS
DATA R EVENUE
What We Said: Strong double-digit
wireless data growth to support
continued ARPU expansion.
What We Did: 39% wireless data
revenue growth with data as a
percent of network revenue
expanding to 16% from 13% in 2007.
FASTEST AND MOST
RELIABLE WIRELESS
NET WORkS
What We Said: Significantly expand
coverage of next-generation HSPA
wireless data network across
Canada.
What We Did: Expanded HSPA
wireless network to cover 76% of
the population while increasing
data speeds to 7.2 Mbps.
GROW C ABLE
TELEPHONY BUSINESS
EXPAND C ABLE
MARGINS
What We Said: Continued rapid
growth in cable telephony
subscribers during 2008.
What We Did: Expanded cover-
age area to 95% of cable territory
and grew subscriber base 28% to
840,000.
What We Said: Leverage growth
with efficiencies to drive at least
100bp of adjusted operating profit
margin expansion at Cable.
What We Did: 16% Cable
Operations adjusted operating
profit growth with nearly 200 basis
point margin expansion.
FINANCIAL HIGHLIGHTS
(In millions of dollars, except per share data)
Revenue
Adjusted operating profit
Adjusted operating profit margin
Adjusted net income (loss)
Adjusted basic earnings (loss) per share
Annualized dividend rate at year-end
Total assets
Long-term debt (includes current portion)
Shareholders‘ equity
Number of employees
TOTAL SHAREHOLDER RETURN
2 0 0 8
$ 11,335
4,060
36%
1,260
1.98
1.00
17,093
8,507
4,727
29,200
$
2 0 0 7
10,123
3,703
37%
1,066
1.67
0.50
15,325
6,033
4,624
27,900
$
2 0 0 6
8,838
2,942
33%
684
1.08
0.16
14,105
6,988
4,200
25,700
$
2 0 0 5
7,334
2,252
31%
47
0.08
0.075
13,834
7,739
3,528
22,600
2 0 0 4
$ 5,514
1,752
32%
(32)
(0.07)
0.05
13,273
8,542
2,385
19,300
TEN -YEAR COMPAR ATIVE TOTAL RETURN: 1998 –20 08
FIVE-YEAR COMPAR ATIVE TOTAL RETURN: 20 03 –20 08
464%
68%
(13%)
52%
(46%)
259%
23%
(10%)
49%
20%
BRINGING
YOUR WORLD
TOGETHER
INNOVATION IN COMMUNICATIONS, INFORMATION AND ENTERTAINMENT
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
RCI.b on TSX
S&P/TSX
COMPOSITE
S&P 500
TSX TELECOM
INDEX
S&P 500
TELECOM INDEX
RCI.b on TSX
S&P/TSX
COMPOSITE
S&P 500
TSX TELECOM
INDEX
S&P 500
TELECOM INDEX
For a detailed discussion of our financial and operating metrics and results, please see the accompanying MD&A later in this report.
INNOVATING FOR LIFE ™
R
O
G
E
R
S
C
O
M
M
U
N
I
C
A
T
I
O
N
S
I
N
C
.
2
0
0
8
A
N
N
U
A
L
R
E
P
O
R
T
T
S
X
:
R
C
I
N
Y
S
E
:
R
C
I
ROGERS.COM
ROGERS COMMUNIC ATIONS INC . AT A GL ANCE
DELIVERING RESULTS IN 2008
DOUBLE-DIGIT
REVENUE G ROW TH
FREE C ASH FLOW
GROW TH
DIVIDEND
INCREASES
GAIN HIGHER VALUE
WIRELESS S UBSCRIBERS
What We Said: Leverage networks,
channels and brand to deliver 11%
or greater revenue growth.
What We Said: Deliver 5% or
greater growth in consolidated
free cash flow.
What We Did: 12% consolidated
revenue growth with Wireless,
Cable Operations and Media all
growing at double-digit rates.
What We Did: Generated a 10%
increase in free cash flow growth.
What We Said: Increase dividends
consistently over time.
What We Did: Doubled annual
dividend per share from $0.50 to
$1.00 in 2008.
What We Said: Continued strong
wireless subscriber growth but with
a focus on postpaid subscribers.
What We Did: Added 604,000
wireless subscribers with 89% of
net additions being on higher value
postpaid plans.
GROW W IRELESS
DATA R EVENUE
What We Said: Strong double-digit
wireless data growth to support
continued ARPU expansion.
What We Did: 39% wireless data
revenue growth with data as a
percent of network revenue
expanding to 16% from 13% in 2007.
FASTEST AND MOST
RELIABLE WIRELESS
NET WORkS
What We Said: Significantly expand
coverage of next-generation HSPA
wireless data network across
Canada.
What We Did: Expanded HSPA
wireless network to cover 76% of
the population while increasing
data speeds to 7.2 Mbps.
GROW C ABLE
TELEPHONY BUSINESS
EXPAND C ABLE
MARGINS
What We Said: Continued rapid
growth in cable telephony
subscribers during 2008.
What We Did: Expanded cover-
age area to 95% of cable territory
and grew subscriber base 28% to
840,000.
What We Said: Leverage growth
with efficiencies to drive at least
100bp of adjusted operating profit
margin expansion at Cable.
What We Did: 16% Cable
Operations adjusted operating
profit growth with nearly 200 basis
point margin expansion.
FINANCIAL HIGHLIGHTS
(In millions of dollars, except per share data)
Revenue
Adjusted operating profit
Adjusted operating profit margin
Adjusted net income (loss)
Adjusted basic earnings (loss) per share
Annualized dividend rate at year-end
Total assets
Long-term debt (includes current portion)
Shareholders‘ equity
Number of employees
TOTAL SHAREHOLDER RETURN
2 0 0 8
$ 11,335
4,060
36%
1,260
1.98
1.00
17,093
8,507
4,727
29,200
$
2 0 0 7
10,123
3,703
37%
1,066
1.67
0.50
15,325
6,033
4,624
27,900
$
2 0 0 6
8,838
2,942
33%
684
1.08
0.16
14,105
6,988
4,200
25,700
$
2 0 0 5
7,334
2,252
31%
47
0.08
0.075
13,834
7,739
3,528
22,600
2 0 0 4
$ 5,514
1,752
32%
(32)
(0.07)
0.05
13,273
8,542
2,385
19,300
TEN -YEAR COMPAR ATIVE TOTAL RETURN: 1998 –20 08
FIVE-YEAR COMPAR ATIVE TOTAL RETURN: 20 03 –20 08
464%
68%
(13%)
52%
(46%)
259%
23%
(10%)
49%
20%
BRINGING
YOUR WORLD
TOGETHER
INNOVATION IN COMMUNICATIONS, INFORMATION AND ENTERTAINMENT
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
RCI.b on TSX
S&P/TSX
COMPOSITE
S&P 500
TSX TELECOM
INDEX
S&P 500
TELECOM INDEX
RCI.b on TSX
S&P/TSX
COMPOSITE
S&P 500
TSX TELECOM
INDEX
S&P 500
TELECOM INDEX
For a detailed discussion of our financial and operating metrics and results, please see the accompanying MD&A later in this report.
ROGERS COMMUNICATIONS INC. AT A GLANCE
ROGERS COMMUNICATIONS
Rogers Communications (TSX: RCI; NYSE: RCI) is a diversified
Canadian communications and media company. As discussed in
the following pages, Rogers Communications is engaged in three
primary lines of business through its wholly owned subsidiaries
Rogers Wireless, Rogers Cable and Rogers Media.
Rogers Communications
REVENUE
($ in billions)
ADJUSTED OPER ATING PROFIT
($ in billions)
F Y20 08 REVENUE:
$11.3 billion
8.8
8.8
10.1
10.1
11.3
11.3
2.9
2.9
3.7
3.7
4.1
4.1
Rogers Wireless
Rogers Cable
Rogers Media
2006
2006
2007
2007
2008
2008
2006
2006
2007
2007
2008
2008
ROGERS WIRELESS
Rogers Wireless provides wireless voice and data communications
services across Canada to nearly 8 million customers under both the
Rogers Wireless and Fido brands. Proven to operate Canada’s most
reliable and fastest wireless networks, Rogers Wireless is Canada’s
largest wireless provider and the only carrier operating on the global
standard GSM and highly advanced 3G HSPA technology platforms.
Rogers Wireless is Canada’s leader in innovative wireless voice and
data services, and provides customers with the best and latest
wireless devices and applications. In addition to providing seamless
wireless roaming across the U.S. and more than 200 countries
internationally, Rogers Wireless also provides wireless broadband
services across Canada utilizing its 2.5 GHz fixed wireless spectrum.
ROGERS CABLE
Rogers Cable is Canada’s largest cable services provider, whose
territory covers approximately 3.5 million homes in Ontario,
New Brunswick and Newfoundland and Labrador with 65% basic
penetration of its homes passed. Its advanced digital two-way
hybrid fibre-coax network provides the leading selection of
on-demand and high-definition programming including an
extensive line-up of sports and multicultural programming.
Rogers Cable pioneered high-speed Internet access and now 68%
of its cable customers subscribe to its high-speed Internet service,
while Rogers Cable boasts 1.3 million residential and business tele-
phony subscribers. Rogers Cable also operates a retail distribution
chain which offers Rogers branded cable, home entertainment and
wireless products and services.
ROGERS MEDIA
Rogers Media is Canada’s premier combination of category-leading
radio and television broadcasting, publishing, sports entertainment
and on-line properties. Its Radio group operates 52 radio stations
across Canada, while its Television properties include the five-
station Citytv network; its five multicultural OMNI television
stations; Rogers Sportsnet, a specialty sports television service
licenced to provide regional sports programming across Canada;
and The Shopping Channel, Canada’s only nationally televised
shopping service. Media’s Publishing group produces 70 well-known
consumer magazines and trade and professional publications in
Canada. Media’s Sports Entertainment assets include the Toronto
Blue Jays Baseball Club and Rogers Centre, Canada’s largest sports
and entertainment facility.
For a detailed discussion of our financial and operating metrics and results, please see the accompanying MD&A later in this report.
REVENUE
($ in billions)
ADJUSTED OPER ATING PROFIT
($ in billions)
F Y20 08 REVENUE:
$6.3 billion
4.6
4.6
5.5
5.5
6.3
6.3
2.0
2.0
2.6
2.6
2.8
2.8
2006
2006
2007
2007
2008
2008
2006
2006
2007
2007
2008
2008
REVENUE
($ in billions)
ADJUSTED OPER ATING PROFIT
($ in billions)
F Y20 08 REVENUE:
$3.8 billion
3.2
3.2
3.6
3.6
3.8
3.8
0.9
0.9
1.0
1.0
1.2
1.2
2006
2006
2007
2007
2008
2008
2006
2006
2007
2007
2008
2008
REVENUE
($ in billions)
ADJUSTED OPER ATING PROFIT
($ in billions)
F Y20 08 REVENUE:
$1.5 billion
1.21
1.21
1.32
1.32
1.50
1.50
0.16
0.16
0.18
0.18
0.14
0.14
Core Media
86%
Sports Entertainment
14%
2006
2006
2007
2007
2008
2008
2006
2006
2007
2007
2008
2008
Wireless
54%
Cable
33%
Media
13%
Postpaid Voice
73%
Wireless Data
15%
Prepaid Voice
Equipment sales
4%
8%
Core Cable
44%
High-Speed Internet
18%
Business Solutions
14%
Home Phone
13%
Retail
11%
“The best is yet to come.”
Ted Rogers 1933-2008
ROGERS COMMUNICATIONS INC. AT A GLANCE
ROGERS COMMUNICATIONS
Rogers Communications (TSX: RCI; NYSE: RCI) is a diversified
Canadian communications and media company. As discussed in
the following pages, Rogers Communications is engaged in three
primary lines of business through its wholly owned subsidiaries
Rogers Wireless, Rogers Cable and Rogers Media.
Rogers Communications
REVENUE
($ in billions)
ADJUSTED OPER ATING PROFIT
($ in billions)
F Y20 08 REVENUE:
$11.3 billion
8.8
8.8
10.1
10.1
11.3
11.3
2.9
2.9
3.7
3.7
4.1
4.1
Rogers Wireless
Rogers Cable
Rogers Media
2006
2006
2007
2007
2008
2008
2006
2006
2007
2007
2008
2008
ROGERS WIRELESS
Rogers Wireless provides wireless voice and data communications
services across Canada to nearly 8 million customers under both the
Rogers Wireless and Fido brands. Proven to operate Canada’s most
reliable and fastest wireless networks, Rogers Wireless is Canada’s
largest wireless provider and the only carrier operating on the global
standard GSM and highly advanced 3G HSPA technology platforms.
Rogers Wireless is Canada’s leader in innovative wireless voice and
data services, and provides customers with the best and latest
wireless devices and applications. In addition to providing seamless
wireless roaming across the U.S. and more than 200 countries
internationally, Rogers Wireless also provides wireless broadband
services across Canada utilizing its 2.5 GHz fixed wireless spectrum.
ROGERS CABLE
Rogers Cable is Canada’s largest cable services provider, whose
territory covers approximately 3.5 million homes in Ontario,
New Brunswick and Newfoundland and Labrador with 65% basic
penetration of its homes passed. Its advanced digital two-way
hybrid fibre-coax network provides the leading selection of
on-demand and high-definition programming including an
extensive line-up of sports and multicultural programming.
Rogers Cable pioneered high-speed Internet access and now 68%
of its cable customers subscribe to its high-speed Internet service,
while Rogers Cable boasts 1.3 million residential and business tele-
phony subscribers. Rogers Cable also operates a retail distribution
chain which offers Rogers branded cable, home entertainment and
wireless products and services.
ROGERS MEDIA
Rogers Media is Canada’s premier combination of category-leading
radio and television broadcasting, publishing, sports entertainment
and on-line properties. Its Radio group operates 52 radio stations
across Canada, while its Television properties include the five-
station Citytv network; its five multicultural OMNI television
stations; Rogers Sportsnet, a specialty sports television service
licenced to provide regional sports programming across Canada;
and The Shopping Channel, Canada’s only nationally televised
shopping service. Media’s Publishing group produces 70 well-known
consumer magazines and trade and professional publications in
Canada. Media’s Sports Entertainment assets include the Toronto
Blue Jays Baseball Club and Rogers Centre, Canada’s largest sports
and entertainment facility.
For a detailed discussion of our financial and operating metrics and results, please see the accompanying MD&A later in this report.
REVENUE
($ in billions)
ADJUSTED OPER ATING PROFIT
($ in billions)
F Y20 08 REVENUE:
$6.3 billion
4.6
4.6
5.5
5.5
6.3
6.3
2.0
2.0
2.6
2.6
2.8
2.8
2006
2006
2007
2007
2008
2008
2006
2006
2007
2007
2008
2008
REVENUE
($ in billions)
ADJUSTED OPER ATING PROFIT
($ in billions)
F Y20 08 REVENUE:
$3.8 billion
3.2
3.2
3.6
3.6
3.8
3.8
0.9
0.9
1.0
1.0
1.2
1.2
2006
2006
2007
2007
2008
2008
2006
2006
2007
2007
2008
2008
REVENUE
($ in billions)
ADJUSTED OPER ATING PROFIT
($ in billions)
F Y20 08 REVENUE:
$1.5 billion
1.21
1.21
1.32
1.32
1.50
1.50
0.16
0.16
0.18
0.18
0.14
0.14
Core Media
86%
Sports Entertainment
14%
2006
2006
2007
2007
2008
2008
2006
2006
2007
2007
2008
2008
Wireless
54%
Cable
33%
Media
13%
Postpaid Voice
73%
Wireless Data
15%
Prepaid Voice
Equipment sales
4%
8%
Core Cable
44%
High-Speed Internet
18%
Business Solutions
14%
Home Phone
13%
Retail
11%
“The best is yet to come.”
Ted Rogers 1933-2008
INNOVATION IN
COMMUNICATIONS,
INFORMATION AND
ENTERTAINMENT
Rogers Communications Inc. is a diversified Canadian communications and media company
engaged in three primary lines of business. Rogers Wireless is Canada’s largest wireless
voice and data communications services provider and the country’s only national carrier
operating on the world standard GSM and HSPA technology platforms. Rogers Cable is
Canada’s largest cable services provider, offering cable television, high-speed Internet
access, and telephony products for residential and business customers, and operating a
retail distribution chain which offers Rogers branded wireless and home entertainment
services. Rogers Media is Canada’s premier group of category-leading broadcast, specialty,
print and on-line media assets with businesses in radio and television broadcasting,
televised shopping, magazine and trade journal publication, and sports entertainment.
ROGERS COMMUNIC ATIONS
TABLE OF CONTENTS
TSX: RCI.a / RCI.b
NYSE: RCI
ROGERS
WIRELESS
ROGERS
C ABLE
ROGERS
MEDIA
2
4
5
6
16
18
20
22
82
82
83
84
85
86
87
88
130
Ted Rogers Tribute
Letter to Shareholders
Why Invest in Rogers
Communications, Information and Entertainment
Corporate Governance
Directors and Senior Corporate Officers
2008 Financial and Operating Highlights
Management’s Discussion and Analysis
Management’s Responsibility for
Financial Reporting
Auditors’ Report to the Shareholders
Consolidated Statements of Income
Consolidated Balance Sheets
Consolidated Statements of Shareholders’ Equity
Consolidated Statement of Comprehensive Income
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Corporate and Shareholder Information
ROGERS COMMU N I C AT I ONS I NC . 20 0 8 A N N UAL REP O R T
1
IN TRIBUTE
Edward “Ted” S. Rogers
May 27, 1933 – December 2, 2008
In December 2008, our company’s founder,
president and CEO passed away at the age
of 75.
Ted Rogers was a Canadian icon. In the
days following his death, he was memori-
alized by many as the greatest Canadian
entrepreneur of the 20th century.
A visionary communications industry
pioneer, Mr. Rogers was known for his
relentless drive – ever pursuing the next
big deal or the next technological innova-
tion he could bring to market. There were
many, including FM radio in the 1960’s and
crystal-clear cable TV reception in the 1970’s,
to cellular phones in the 1980’s to today’s
high-speed Internet to the home and wire-
less e-mail, web browsing and video.
Ted Rogers had the uncanny ability to
spot the next communications trend,
get out in front of it and position Rogers
as the segment leader. He built Rogers
Communications into the country’s largest
wireless company and largest cable services
provider, with significant media proper-
ties including 52 radio stations, numerous
television properties including five Citytv
stations, five OMNI multicultural chan-
nels, Rogers Sportsnet and The Shopping
Channel, 70 consumer and trade maga-
zines, the Toronto Blue Jays and the
Rogers Centre.
A graduate of the University of Toronto
and Osgoode Hall Law School, Mr. Rogers
was a lawyer by training, but an entre-
preneur by nature. Even at the end, his
business card read: “Ted Rogers, Senior
Salesperson”.
His reputation as an innovator and risk
taker was earned early in his career when,
while still in law school, he purchased
Toronto FM-radio station CHFI in 1960
when only 5% of the city’s households
even had FM receivers.
He claimed it was in his genes. His father,
Edward Rogers Sr., once hailed as a “boy
genius” in newspapers around the world,
invented the electrical plug-in radio and
worked on other communications devices
that are now part of our daily lives, from
television to radar.
Then, he and Loretta donated $25 million
to the University of Toronto (the school’s
largest-ever personal donation), and
$10 million more to Ryerson University. In
2007, Ryerson received another $15 million
from the Rogers and today its business
school bears Ted Rogers’ name.
At his father’s untimely death in 1939 at
the age of 38, when Ted Jr. was only five
years old, the fledgling Rogers empire was
sold. Ted would often say that he spent his
life working to rebuild what he thought
had been wrongfully taken away.
Through all the successes of his life,
Mr. Rogers retained an enigmatic streak.
He could be charming to a fault or unleash
a well-known temper. His work ethic was
legendary and he thrived on conflict. He
expected his management team to work
just like he did. His personality and work
ethic instilled tremendous loyalty.
Many of his ideas came from listening to
those around him. He was unfailingly
curious about what others were thinking,
tapping into the expertise of engineers,
getting the front-line perspective of
customer service representatives and
speaking with customers he met on
the street.
In 1990, Mr. Rogers was made an Officer
of The Order of Canada and in 1994 was
inducted into the Canadian Business Hall
of Fame. In 2002, Mr. Rogers was the first
Canadian inducted into the Cable Hall
of Fame in Denver. Also in 2002, he and
wife Loretta were named Outstanding
Philanthropists of the Year by the
Association of Fundraising Professionals.
Over the years, he was awarded eight
honorary doctorates from North American
universities.
Toronto Life magazine named Ted Rogers
“Man of the Year” in 2000. In only a mat-
ter of months, he had stepped up to the
plate and saved the city’s beleaguered major
league baseball team, the Toronto Blue Jays.
Over the years, Ted and Loretta also
donated tens of millions of dollars to chari-
ties such as the Toronto General Hospital,
Toronto Western Hospital, Sunnybrook
Health Sciences Centre, Woodstock
General Hospital, Sheena’s Place and the
Mayo Clinic in Rochester, Minnesota,
where he had had heart surgery.
In October 2008, Mr. Rogers’ autobiogra-
phy entitled Relentless: The True Story of
the Man Behind Rogers Communications
was published by HarperCollins. It quickly
became a best-seller. True to form, the
book is a candid account from a legendary
entrepreneur who talks about his successes
and his failures, and takes the reader
beyond the brand and inside the man.
Ted Rogers leaves his wife, Loretta; four
children: Lisa, Edward (Suzanne), Melinda
(Eric) and Martha; and four grandchildren:
Chloé, Edward, Jack and Zachary. Edward
and Melinda have followed their father
in the family business with each holding
senior roles at Rogers. Edward is president
of the cable business and Melinda oversees
strategy and development; and, together
with Loretta and Martha, they serve as
directors on the Rogers Communications
board.
Few Canadian businessmen have left a greater
legacy. Today, Rogers Communications
employs 29,000 Canadians, has annual
revenue of more than $11 billion and the
value of the company’s stock exceeds
$20 billion. Ted Rogers leaves behind not
just an unrivalled legacy, but an industrial
strength company that proudly bears
his name and carries on his life’s labour
and passions.
2
ROGERS COMMU N I C AT I ONS I NC . 20 0 8 A N N UAL REP O R T
ROGERS COMMU N I C AT I ONS I NC . 20 0 8 A N N UAL REP O R T
3
Fellow Shareholders
In December 2008, we mourned the passing
of Ted Rogers, the company’s founder and
Chief Executive Officer. Ted was one of a
kind who built this company from one
FM radio station nearly 50 years ago into
what is today Canada’s largest wireless,
cable and media company. His absence
has been felt very much by his friends and
colleagues at Rogers during these past
few difficult months and he will be sadly
missed, but never forgotten.
Over the past several years, one of Ted’s
most urgent focuses had been to ensure
that Rogers Communications was what
he liked to call ‘industrial strength’. After
decades of rapid growth, he wanted to
make sure that the time was taken and the
investments were made to put in place the
infrastructure, management, processes and
financial strength to secure the company
both today and into the future.
Despite the challenging economic
environment and competitive landscape,
Rogers Communications is arguably in the
strongest position it has ever been –
financially, organizationally, structurally
and operationally. The company has excel-
lent positions in the fastest growing mar-
kets in the communications industry; has
powerful and well respected brands that
stand strongly for innovation, entrepre-
neurial spirit, choice and value; is a leading
provider of services that are increasingly
becoming necessities in today’s world; has
proven performance-oriented management
with solid industry expertise, technical
depth and company tenures; and is finan-
cially strong with an investment grade bal-
ance sheet, $1.8 billion of available liquidity
and no debt maturities until May 2011.
2008 was a year of unprecedented change
and many challenges for Rogers, yet
the company performed well financially,
delivering 12% revenue growth and
10% growth in both adjusted operating
profit and free cash flow, defined as adjusted
operating profit less capital expenditures
and interest expense. We were able to
deliver this respectable growth in the face
of progressively deteriorating economic
conditions and at the same time absorb
dilutive upfront investments to rapidly drive
wireless smartphone adoption.
Our subscriber growth continued at healthy
rates in 2008 reflecting the quality of our
service offerings and the increasing daily
relevance of our products to consumers and
businesses. Our wireless subscribers now
total nearly 8 million, while Internet, digital
TV and cable telephony subscriber levels
all increased.
We also continued to invest in our networks
and systems at a healthy rate. Partially as
a result, both our wireless and cable busi-
nesses are able to claim that their products
are the fastest and most reliable.
To fund the purchase of 20MHz of national
AWS spectrum that we acquired at auction
and to term out a portion of short-term
borrowing, we were successful during
August 2008 in issuing US$1.75 billion of
investment grade notes on very favour-
able terms despite extreme volatility in the
credit markets.
At the start of 2008, our Board approved
a doubling of the annual dividend to
$1.00 per share and also instituted the
company’s first ever share buyback
program, which combined to provide for
a balanced, tax efficient and shareholder
friendly allocation of a material portion of
the free cash flow the business generated.
In February 2009, we announced that
we would further increase the dividend to
$1.16 and that we were refreshing our share
buyback program for 2009.
While 2008 was obviously a very challeng-
ing period in the global equity markets,
the RCI.b shares, which declined 19% on
the TSX, actually outperformed the wire-
less and cable peer groups and the North
American broad market indexes, which all
declined by more significant amounts.
2009 will almost certainly bring many more
challenges to the economy, to our sector,
and to Rogers. As we go forward, our asset
mix and strategy are set, and our primary
focus is on execution. We have a tremendous
opportunity to continue enhancing our
customer service, sharpen our marketing
and customer relationship management
capabi lities, and become more efficient.
Our plan for 2009 strikes a healthy balance
between continued growth, the return
of increasing amounts of our growing free
cash flow to shareholders, and prudent
investments in our networks, systems and
service delivery platforms that will help assure
that such growth continues in the future.
If you live in Canada, please sample and
subscribe to Rogers’ many services. They will
entertain you, inform you and help keep
you in touch.
Thank you for your investment, confidence
and continued support.
Alan D. Horn
Chairman of the Board
Rogers Communications Inc.
“While 2009 will almost certainly bring more challenges to the economy, to our sector, and
to Rogers, our plan strikes a healthy balance between continued growth, the return of
increasing amounts of our growing free cash flow to shareholders, and prudent investments
in our networks, systems and service delivery platforms that will help ensure that such
growth continues in the future.”
Alan D. Horn
4
ROGERS COMMU N I C AT I ONS I NC . 20 0 8 A N N UAL REP O R T
Why Invest in Rogers
Rogers Communications has excellent positions in growing markets, a powerful brand, proven management, a long record of driving
growth and shareholder value, and the financial strength to continue its growth well into the future.
Leader in
Canadian
Communications
Industry
Canada’s largest wireless
carrier and largest cable
television provider, offering
a ‘quadruple play’ of
wireless, television, Internet
and telephony services to
consumers and businesses.
Superior
Asset Mix
Powerful
Brands
Nationally recognized and
highly respected brands that
stand strongly in Canada for
innovation, entrepreneurial
spirit, choice and value.
Must-Have
Products and
Services
Majority of revenue and
cash flow is generated from
wireless and broadband
services, the healthiest and
fastest growing segments of
the communications industry.
A leading provider of
communications and
entertainment products and
services that are increasingly
becoming necessities in
today’s world.
Category-
Leading
Media Assets
Unique and complementary
collection of leading broadcast
radio and television, specialty
TV, magazine and sports
entertainment assets.
Extensive
Product
Distribution
Network
Unmatched national product
distribution network consisting
of more than 3,500 Rogers-
owned, dealer and retail
outlets.
Proven
Leadership
and Operating
Management
Experienced, performance-
oriented management and
operating teams with solid
industry expertise, technical
depth and company tenures.
Strong
Balance
Sheet
Financially strong with
balance sheet leverage at
two times debt to operating
profit, investment grade
credit ratings, $1.8 billion of
available liquidity and no debt
maturities until May 2011.
Healthy
Liquidity and
Meaningful
Dividends
RCI common stock actively
trades on the TSX and NYSE,
with average daily trading
volume greater than three
million shares. Each share pays
an annualized dividend of
$1.16 per share in 2009.
Track Record
of Value
Creation
Proven 30-year public market
track record of long-term
index-beating shareholder
value creation.
ROGERS COMMU N I C AT I ONS I NC . 20 0 8 A N N UAL REP O R T
5
6
ROGERS COMMU N I C AT I ONS I NC . 20 0 8 A N N UAL REP O R T
A WORLD OF
COMMUNICATION
Canadians count on Rogers to keep them in touch with those who
matter most, with greater choice, speed and coverage at home, at
the office and on the move, around town and around the globe.
Families stay close with reliable wireless and home phone services
for voice, and with e-mail, text and instant messaging when they
don’t have time to talk. Rogers bridges distances and technologies
with innovative converged services like voice messages by e-mail
and single number services.
Youth and young adults connect with friends on the fly on
the coolest devices like the must-have iPhone 3G or the latest
BlackBerry. Rogers makes it effortless to share thoughts, pictures,
music and video, watch YouTube, or link to the hottest social
networking sites like Facebook or Twitter.
Canadian businesses have access to data and clients wherever they
are with Rogers delivering their business communications needs –
wired, wireless and broadband. With Rogers’ revolutionary next-
generation HSPA network delivering the fastest data speeds in the
country, high-speed wireless connectivity to the corporate network
is now just an everyday part of doing business.
WIRELESS
VOICE
HOME
PHONE
TEX T & INSTANT
MESSAGING
HOME & MOBILE
E-MAIL
BUSINESS
TELEPHONY
VIDEO
C ALLING
BUSINESS IP
SOLUTIONS
CONVERGED
WIRELESS/
WIRELINE
DATA
NET WORKING
ROGERS COMMU N I C AT I ONS I NC . 20 0 8 A N N UAL REP O R T
7
A WORLD OF
INFORMATION
Whether at their desk, on the couch or on the go, Canadians know
they will stay informed in today’s fast-paced, knowledge-based
world with high-speed Internet and data networking services,
the latest devices, and innovative applications from Rogers. With
Canada’s fastest wireless network and the fastest, most reliable
broadband connections, Rogers makes sure they’re never far from
the things they need to know, now.
High-speed Internet at home or on the go lets them connect to
information in their community and around the world, bringing
them closer to the everyday information they need to know and
the unknown people and places they’re curious about.
In the world of commerce, Rogers provides a single reliable source
for advanced business-focused wired and wireless IP and data
networking solutions, so that the information that drives business
is always on hand.
Individuals and businesses alike get in-depth news, information
and perspectives on the world through an expansive selection of
unique and informative broadcast, print and on-line content from
Rogers Media.
HIGH-SPEED
INTERNET
SMARTPHONES
BUSINESS IP
SOLUTIONS
SPECIALT Y
CONTENT
DATA
NET WORKING
WIRELESS
BROADBAND
T V, R ADIO &
PRINT MEDIA
NEWS, WEATHER
& SPORTS
LOC AL
CONTENT
8
ROGERS COMMU N I C AT I ONS I NC . 20 0 8 A N N UAL REP O R T
ROGERS COMMU N I C AT I ONS I NC . 20 0 8 A N N UAL REP O R T
9
10
ROGERS COMMU N I C AT I ONS I NC . 20 0 8 A N N UAL REP O R T
A WORLD OF
ENTERTAINMENT
Rogers gives customers the best seat in the house with unparalleled
choice in on-demand sports, movies, prime time, news, specialty and
multicultural programming. With total viewing control, they can
watch what they want, when they want, so they pause TV, not life.
With thousands of viewing choices enabled by on-demand digital
cable TV, combined with a PVR and the ability to automatically
record and play back content when it’s convenient, the entertain-
ment Canadians want has never been broader or more accessible
than from Rogers.
For HDTV fans, Rogers delivers the most in sports, movies and
on-demand content with brilliant images and incredible sound.
Canada’s ethnically diverse communities find their entertainment
match in Rogers with the broadest selection of multicultural
programming in 24 different languages. Parents can access a vast
selection of children’s programming and block unsuitable program-
ming with the push of a button.
Whether Canadians are enjoying TV at home, watching video
on their mobile devices or over the Internet, listening to their
favourite radio station on the way to work, or relaxing with
their favourite magazine at the cottage, they know it’s Rogers
that brings them the entertainment that enriches and excites
their worlds.
C ABLE
TELEVISION
VIDEO
ON DEMAND
HD CONTENT
& PVRs
EXCLUSIVE
SPORTS
BROADC AST &
SPECIALT Y T V
MULTICULTURAL
PROGRAMMING
MOBILE MUSIC
& APPS
R ADIO &
MAGAZINES
MOBILE
MULTIMEDIA
ROGERS COMMU N I C AT I ONS I NC . 20 0 8 A N N UAL REP O R T
11
A WORLD
MADE BETTER
FOR CUSTOMERS
We continually invest in our networks, platforms, products and
people to provide the latest and most robust services to customers.
More than just a commitment to deliver the latest and best
products, it’s about also striving to ensure that customers enjoy
convenience, reliability and flexibility in the way we provide them.
Rogers is working hard to become a company that is easy to do
business with. We’re investing more than ever in customer service
infrastructure, systems and training to ensure we have the right
people in place with the right tools to understand customer needs,
respond quickly and resolve customer issues right the first time.
With hundreds of local stores and reliable dealers, call centres
staffed by trained professionals in Canada, and live on-line chat
support, Rogers places a premium on providing customers with the
help they need when and where it’s convenient for them.
Whether it’s providing uninterrupted network service, being avail-
able when it’s most convenient, showing up on service calls when
we say we will, or providing knowledgeable telephone support,
satisfying our customers’ demand for reliability and flexibility is
one of our most important focuses and something our thousands
of employees strive to achieve every day.
SINGLE POINT
OF CONTAC T
PERSONALIZED
BUNDLES
24/7
SERVICE
CONVENIENT
LOC ATIONS
ON -LINE
SELF -SERVICE
FLEXIBLE
APPOINTMENTS
ELEC TRONIC
BILLING &
PAYMENT
WEB -BASED
ORDERING
MULTILINGUAL
SERVICE
12
ROGERS COMMU N I C AT I ONS I NC . 20 0 8 A N N UAL REP O R T
ROGERS COMMU N I C AT I ONS I NC . 20 0 8 A N N UAL REP O R T
13
14
14
ROGERS COMMU N I C AT I ONS I NC . 20 0 8 A N N UAL REP O R T
ROGERS COMMU N I C AT I ONS I NC . 20 0 8 A N N UAL REP O R T
TOGETHER WITH
OUR COMMUNITIES
Rogers supports initiatives that are as diverse as Canada’s communities.
We support programs that are dedicated to keeping children
healthy, safe and active, both in the community and on-line. We
support kids’ sports, partner with Internet safety organizations
to combat the sexual exploitation of children on-line, assist in the
recovery of lost children, and volunteer to keep children safe on
Halloween through Rogers Pumpkin Patrol.
We are also a long-term supporter of local food banks, helping
Canada’s neediest families during times of hardship. As the offi-
cial wireless sponsor of the “Phones for Food” cell phone recycling
program, Rogers has helped generate funds to provide emergency
food assistance to Food Banks Canada while diverting more than
360,000 cell phones from landfills.
In the wireless device supply chain, Rogers continually seeks to
reduce environmental impacts by shrinking packaging, moving user
manuals on-line, and favouring USB, Bluetooth and Energy Star-
based accessories.
As Canada’s largest magazine publisher, Rogers has a strong commit-
ment to environmentally sound paper sourcing that ensures respon-
sible forest management, the efficient use of natural resources,
pollution reduction and a reduction in greenhouse gas emissions.
FOOD
BANKS
SAFE & AC TIVE
CHILDREN
WOMEN’S
SHELTERS
COMMUNIT Y
NEWS & E VENTS
CELL PHONE
REC YCLING
ACCESSIBLE
SERVICES
MULTICULTUR AL
PROGR AMMING
ARTS &
CULTURE
GREEN PAPER
POLICIES
ROGERS COMMU N I C AT I ONS I NC . 20 0 8 A N N UAL REP O R T
ROGERS COMMU N I C AT I ONS I NC . 20 0 8 A N N UAL REP O R T
15
15
CORPORATE GOVERNANCE
As at February 20, 2009
B OAR D OF D IRE C T OR S AN D IT S COM MI T T E E S
Alan D. Horn, CA
Peter C. Godsoe, OC
Ronald D. Besse
C. William D. Birchall
John H. Clappison, FCA
Thomas I. Hull
Philip B. Lind, CM
Isabelle Marcoux
Nadir H. Mohamed, CA
The Hon. David R. Peterson, PC, QC
Edward S. Rogers
Loretta A. Rogers
Martha L. Rogers
Melinda M. Rogers
William T. Schleyer
John A. Tory, QC
J. Christopher C. Wansbrough
Colin D. Watson
AUDIT
CORPORATE
GOVERNANCE
NOMINATING
COMPENSATION
EXECUTIVE
FINANCE
PENSION
C HA IR
C HA IR
CHAIR
CHAIR
C HA IR
C HA IR
CH AIR
Rogers Communications’ Board of Directors is strongly committed
to sound corporate governance and continuously reviews its
governance practices and benchmarks them against acknowledged
leaders and evolving legislation. We are a family-controlled
company and take pride in our proactive and disciplined approach
towards ensuring that Rogers’ governance structures and practices
are deserving of the confidence of the public equity markets.
With the December 2008 passing of company founder and CEO
Ted Rogers, his voting control of RCI passed to a trust of which
members of the Rogers family are beneficiaries. This trust holds
voting control of RCI for the benefit of successive generations of
the Rogers family.
As substantial stakeholders, the Rogers family is represented on
our Board and brings a long-term commitment to oversight and
value creation. At the same time, we benefit from having outside
directors who are some of the most experienced business leaders
in North America.
In the Board’s view its corporate governance model must be
appropriate to the Company’s circumstances but it believes in the
central role played by directors in the overall governance process.
The Board believes that the Company’s governance system is
effective and that there are appropriate structures and procedures
in place to ensure its independence.
The composition of our Board and structure of its various
committees are outlined above. As well, we make detailed infor-
mation of our governance structures and practices – including
our complete statement of corporate governance practices, our
codes of conduct and ethics, full committee charters, and board
member biographies – easily available in the corporate governance
section within the Investor Relations section of rogers.com. Also
in the corporate governance section of our website you will find
a summary of the differences between the NYSE corporate
governance rules applicable to U.S.-based companies and our
governance practices as a non-U.S.-based issuer that is listed
on the NYSE.
16
ROGERS COMMU N I C AT I ONS I NC . 20 0 8 A N N UAL REP O R T
“ Over the years the Canadian economy has benefited greatly from family-
founded and controlled companies that are able to take a longer-term view
of investment horizons and general business management. At Rogers, we have
successfully overlaid disciplined corporate governance processes that strike
a healthy balance of being supportive of the business’ continued success,
making common business sense, and benefiting all shareholders.”
Alan D. Horn
Chairman of the Board
Rogers Communications Inc.
“ Rogers has a long tradition of strong independent voices and directors in the
boardroom and sound governance structures which ensure that their influence
is real. The structure of our Board is very much intended to ensure that the
Directors and management act in the interests of all Rogers’ shareholders –
an approach that has helped ensure the continuance of strong independent
family-founded Canadian companies.”
Peter C. Godsoe, OC
Lead Director
Rogers Communications Inc.
The Audit Committee reviews the Company’s accounting policies
and practices, the integrity of the Company’s financial reporting
processes and procedures and the financial statements and other
relevant public disclosures to be provided to the public. The
Committee also assists the Board in its oversight of the Company’s
compliance with legal and regulatory requirements relating to
financial reporting and assesses the systems of internal accounting
and financial controls and the qualifications, independence and
work of external auditors and internal auditors.
The Corporate Governance Committee assists and makes
recommendations to the Board to ensure the Board of Directors
has developed appropriate systems and procedures to enable the
Board to exercise and discharge its responsibilities. To carry this
out the Corporate Governance Committee assists the Board in
developing, recommending and establishing corporate governance
policies and practices and leads the Board in its periodic review of
the performance of the Board and its committees.
The Nominating Committee assists and makes recommendations
to the Board to ensure that the Board of Directors is properly
constituted to meet its fiduciary obligations to shareholders
and the Company. To carry this out, the Nominating Committee
identifies prospective Director nominees for election by the
shareholders and for appointment by the Board and also recom-
mends nominees for each committee of the Board including each
committee’s Chair.
The Compensation Committee assists the Board in monitoring,
reviewing and approving compensation and benefit policies
and practices. The Committee is responsible for recommending
director and senior management compensation and for succession
planning with respect to senior executives.
The Executive Committee assists the Board in discharging its
responsibilities in the intervals between meetings of the Board,
including to act in such areas as specifically designated and
authorized at a preceding meeting of the Board and to consider
matters concerning the Company that may arise from time to time.
The Finance Committee reviews and reports to the Board on
matters relating to the Company’s investment strategies, hedging
program, and general debt and equity structure.
The Pension Committee supervises the administration of
the Company’s pension plans and reviews the provisions and
investment performance of the Company’s pension plans.
ROGERS COMMU N I C AT I ONS I NC . 20 0 8 A N N UAL REP O R T
17
DIRECTORS AND SENIOR CORPORATE OFFICERS OF ROGERS COMMUNICATIONS INC.
Alan D. Horn, CA
Chairman; President and
Chief Executive Officer
Rogers Telecommunications
Limited
Peter C. Godsoe, OC
Lead Director;
Company Director
Ronald D. Besse
President, Besseco Holdings Inc.
Charles William David Birchall
Vice Chairman, Barrick Gold
Corporation
John H. Clappison, FCA
Company Director
Thomas I. Hull
Chairman and
Chief Executive Officer
The Hull Group of Companies
Philip B. Lind, CM
Vice Chairman
Rogers Communications
Isabelle Marcoux
Vice Chair and Vice President
Corporate Development
Transcontinental Inc.
Nadir H. Mohamed, CA
President and Chief Operating
Officer, Communications Group
Rogers Communications
The Hon. David R. Peterson,
PC, QC
Senior Partner and Chairman
Cassels Brock & Blackwell LLP
Edward S. Rogers
President, Rogers Cable
Loretta A. Rogers
Company Director
I N M EM O R I A M
Edward “Ted” S. Rogers, OC
1933 - 2008
18
ROGERS COMMU N I C AT I ONS I NC . 20 0 8 A N N UAL REP O R T
Martha L. Rogers
Dr. of Naturopathic Medicine
Melinda M. Rogers
Senior Vice President,
Strategy and Development
Rogers Communications
William T. Schleyer
Company Director
John A. Tory, QC
Director, The Woodbridge
Company Limited
J. Christopher C. Wansbrough
Chairman, Rogers
Telecommunications Limited
Colin D. Watson
Company Director
Robert W. Bruce
President, Rogers Wireless
William W. Linton, CA
Senior Vice President, Finance
and Chief Financial Officer
Rogers Communications
David P. Miller
Senior Vice President, General
Counsel and Secretary
Rogers Communications
Kevin P. Pennington
Senior Vice President,
Chief Human Resources Officer
Rogers Communications
Anthony P. Viner
President and Chief Executive
Officer, Rogers Media
DIREC TOR
SENIOR CORPOR ATE OFFICER
See rogers.com for an expanded listing and biographical information
of Rogers’ corporate and operating company management teams.
ROGERS COMMU N I C AT I ONS I NC . 20 0 8 A N N UAL REP O R T
19
2008 FINANCIAL AND OPERATING HIGHLIGHTS
The following represents a sampling of Rogers Communications Inc.’s performance highlights for 2008.
DOUBLE-DIGIT
REVENUE GROW TH
FREE C ASH
FLOW GROW TH
DIVIDEND
GROW TH
SHARE
BUYBACKS
Consolidated revenue
growth of 12%, the sixth
consecutive year of double-
digit top-line growth
Consolidated free cash
flow increased by 10% to
$1.5 billion
Annual dividend per share
increased from $0.50 to $1.00
annually
Instituted first-ever share
buyback program, repurchas-
ing 4.1 million shares for
$137 million
DEBT
FINANCING
BAL ANCE SHEET
STRENGTH
WIRELESS
GROW TH
C ANADA’S FASTEST
WIRELESS NET WORK
Issued US$1.75 billion of long-
term notes with investment
grade terms and pricing
$1.8 billion liquidity with no
debt maturities until 2011,
and a ratio of 2.1 times debt
plus net derivative liabilities
to adjusted operating profit
Grew wireless revenue by
15%, wireless data revenue
by 39% and subscribers by
604,000
Expanded next generation
HSPA wireless network to
76% of country while
increasing speed to 7.2 Mbps
WIRELESS SPEC TRUM
ACQUISITION
APPLE
iPHONE
INTERNET AND DIGITAL
SERVICES PENETR ATION
C ABLE TELEPHONY
PENETR ATION
Acquired 20 MHz of
Advanced Wireless Services
(AWS) spectrum across
Canada by auction for
$1 billion
Launched the Apple iPhone
3G in Canada selling 385,000
high ARPU units in less than
six months
Grew high-speed Internet
and digital cable penetra-
tion levels to 68% and 67% of
basic subscribers, respectively
Increased penetration of
cable telephony service to
24% of homes passed in our
cable territory, topping more
than 840,000 subscribers
C ABLE MARGIN
EXPANSION
AUROR A C ABLE
ACQUISITION
NEW BROADC ASTING
PROPERTIES
TORONTO
NFL SERIES
Expanded Cable Operations
adjusted operating profit
margins by nearly 200 basis
points year-over-year to 41%
Expanded and tightened
Ontario cable TV cluster
with acquisition of
Aurora Cable TV
Added three new OMNI
television stations and a
new FM radio station in
Western Canada
Announced a five-year,
eight-game series of
Buffalo Bills NFL games at
Rogers Centre in Toronto
For a detailed discussion of our financial and operating metrics and results, please see the accompanying MD&A later in this report.
20
ROGERS COMMU N I C AT I ONS I NC . 20 0 8 A N N UAL REP O R T
FINANCIAL SECTION CONTENTS
22 MANAGEMENT’S DISCUSSION AND ANALYSIS
82 MANAGEMENT’S RESPONSIBILITY FOR
Corporate Overview
23 Our Business
24 Our Strategy
24 Acquisitions
24 Consolidated Financial and Operating Results
31 2009 Financial and Operating Guidance
Segment Review
31 Wireless
37 Cable
48 Media
Consolidated Liquidity and Financing
50 Liquidity and Capital Resources
53
54 Outstanding Common Share Data
54 Dividends and Other Payments on
Interest Rate and Foreign Exchange Management
RCI Equity Securities
55 Commitments and Other Contractual Obligations
55 Off-Balance Sheet Arrangements
Operating Environment
56 Government Regulation and
Regulatory Developments
59 Competition in our Businesses
61 Risks and Uncertainties Affecting our Businesses
Accounting Policies and Non-GAAP Measures
66 Key Performance Indicators and
Non-GAAP Measures
68 Critical Accounting Policies
69 Critical Accounting Estimates
71 New Accounting Standards
71 Recent Canadian Accounting Pronouncements
73 U.S. GAAP Differences
Additional Financial Information
73 Related Party Transactions
74 Five-Year Summary of Consolidated Financial Results
75 Summary of Seasonality and Quarterly Results
77 Controls and Procedures
78 Supplementary Information: Non-GAAP Calculations
FINANCIAL REPORTING
82 AUDITORS’ REPORT TO THE SHAREHOLDERS
83 CONSOLIDATED STATEMENTS OF INCOME
84 CONSOLIDATED BALANCE SHEETS
85 CONSOLIDATED STATEMENTS OF
SHAREHOLDERS’ EQUITY
86 CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
87 CONSOLIDATED STATEMENTS OF CASH FLOWS
88 NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
88 Note 1: Nature of the Business
88 Note 2: Significant Accounting Policies
94 Note 3: Segmented Information
96 Note 4: Business Combinations and Divestitures
98 Note 5: Investment in Joint Ventures
98 Note 6: Integration and Restructuring Expenses
99 Note 7: Income Taxes
100 Note 8: Net Income Per Share
101 Note 9: Other Current Assets
101 Note 10: Property, Plant and Equipment
101 Note 11: Goodwill and Intangible Assets
103 Note 12: Investments
104 Note 13: Other Long-Term Assets
105 Note 14: Long-Term Debt
108 Note 15: Financial Risk Management and
Financial Instruments
113 Note 16: Other Long-Term Liabilities
114 Note 17: Pensions
117 Note 18: Shareholders’ Equity
118 Note 19: Stock-Based Compensation
121 Note 20: Consolidated Statements of Cash Flows
and Supplemental Information
121 Note 21: Capital Risk Management
122 Note 22: Related Party Transactions
122 Note 23: Commitments
123 Note 24: Contingent Liabilities
124 Note 25: Canadian and United States
Accounting Policy Differences
129 Note 26: Subsequent Events
130 CORPORATE AND SHAREHOLDER INFORMATION
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
21
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2008
This Management’s Discussion and Analysis (“MD&A”) should be
read in conjunction with our 2008 Audited Consolidated Financial
Statements and Notes thereto. The financial information presented
herein has been prepared on the basis of Canadian generally
accepted accounting principles (“GAAP”) and is expressed in
Canadian dollars, unless otherwise stated. Please refer to Note 25
to the 2008 Audited Consolidated Financial Statements for a summary
of differences between Canadian and United States (“U.S.”) GAAP.
This MD&A, which is current as of February 18, 2009, is organized into
six sections.
1 CORPORATE OVERVIEW
2 SEGMENT REVIEW
3 CONSOLIDATED LIQUIDITY
AND FINANCING
23
24
24
24
31
Our Business
Our Strategy
Acquisitions
Consolidated Financial and
Operating Results
2009 Financial and
Operating Guidance
31 Wireless
37
Cable
48 Media
50
53
54
54
55
Liquidity and Capital Resources
Interest Rate and Foreign
Exchange Management
Outstanding Common Share Data
Dividends and Other Payments
on RCI Equity Securities
Commitments and Other
Contractual Obligations
55
Off-Balance Sheet Arrangements
4 OPERATING ENVIRONMENT
56
59
61
Government Regulation and
Regulatory Developments
Competition in our Businesses
Risks and Uncertainties Affecting
our Businesses
5
66
68
69
71
71
AC C O U N T I N G P O L I C I E S A N D
N O N - G A A P M E A S U R E S
6 A D D I T I O N A L F I N A N C I A L
I N F O R M AT I O N
Key Performance Indicators and
Non-GAAP Measures
Critical Accounting Policies
Critical Accounting Estimates
New Accounting Standards
Recent Canadian Accounting
Pronouncements
73
U.S. GAAP Differences
73
74
75
77
78
Related Party Transactions
Five-Year Summary of
Consolidated Financial Results
Summary of Seasonality and
Quarterly Results
Controls and Procedures
Supplementary Information:
Non-GAAP Calculations
In this MD&A, the terms “we”, “us”, “our”, “Rogers” and “the
Company” refer to Rogers Communications Inc. and our subsidiaries,
which were reported in the following segments for the year ended
December 31, 2008:
• “Wireless”, which refers to our wireless communications opera-
tions, including Rogers Wireless Partnership (“RWP”) and Fido
Solutions Inc. (“Fido”);
channels including The Biography Channel Canada, G4TechTV
and Outdoor Life Network; Rogers Publishing, which publishes
approximately 70 magazines and trade journals; and Rogers
Sports Entertainment, which owns the Toronto Blue Jays Baseball
Club (“Blue Jays”) and Rogers Centre. Media also holds owner-
ship interests in entities involved in specialty television content,
television production and broadcast sales.
• “Cable”, which refers to our wholly-owned cable television sub-
sidiaries, including Rogers Cable Communications Inc. (“RCCI”)
and its subsidiary, Rogers Cable Partnership; and
“RCI” refers to the legal entity Rogers Communications Inc. exclud-
ing our subsidiaries.
Substantially all of our operations are in Canada.
• “Media”, which refers to our wholly-owned subsidiary Rogers
Media Inc. and its subsidiaries, including Rogers Broadcasting,
which owns a group of 52 radio stations, the Citytv television
network, the Rogers Sportsnet television network, The Shopping
Channel, the OMNI television stations, and Canadian specialty
Throughout this MD&A, all percentage changes are calculated
using numbers rounded to the decimal to which they appear. Please
note that the charts, graphs and diagrams that follow have been
included for ease of reference and illustrative purposes only and do
not form part of management’s discussion and analysis.
22
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
C AUTION REGARDING FORWARD -LOOkING STATEMENTS, RISkS
AND A SSUMP TIONS
This MD&A includes forward-looking statements and assumptions
concerning our business, its operations and its financial perfor-
mance and condition approved by management on the date of
this MD&A. These forward-looking statements and assumptions
include, but are not limited to, statements with respect to our objec-
tives and strategies to achieve those objectives, statements with
respect to our beliefs, plans, expectations, anticipations, estimates
or intentions, including guidance and forecasts relating to revenue,
adjusted operating profit, property, plant and equipment (“PP&E”)
expenditures, free cash flow, expected growth in subscribers and
the services to which they subscribe, the cost of acquiring subscrib-
ers and the deployment of new services and all other statements
that are not historical facts. Such forward-looking statements are
based on current objectives, strategies, expectations and assump-
tions that we believe to be reasonable at the time including, but not
limited to, general economic and industry growth rates, currency
exchange rates, product pricing levels and competitive intensity,
subscriber growth and usage rates, changes in government regula-
tion, technology deployment, device availability, the timing of new
product launches, content and equipment costs, the integration of
acquisitions, and industry structure and stability.
Except as otherwise indicated, this MD&A and our forward-looking
statements do not reflect the potential impact of any non-recurring
or other special items or of any dispositions, monetizations, mergers,
acquisitions, other business combinations or other transactions that
may be considered or announced or may occur after the date of the
financial information contained herein.
We caution that all forward-looking information, including any
statement regarding our current intentions, is inherently subject to
change and uncertainty and that actual results may differ materi-
ally from the assumptions, estimates or expectations reflected in
the forward-looking information. A number of factors could cause
actual results to differ materially from those in the forward-look-
ing statements or could cause our current objectives and strategies
to change, including but not limited to economic conditions, tech-
nological change, the integration of acquisitions, unanticipated
changes in content or equipment costs, changing conditions in the
entertainment, information and communications industries, regu-
latory changes, litigation and tax matters, the level of competitive
intensity and the emergence of new opportunities, many of which
are beyond our control and current expectation or knowledge.
Therefore, should one or more of these risks materialize, should
our objectives or strategies change, or should any other factors
underlying the forward-looking statements prove incorrect, actual
results and our plans may vary significantly from what we currently
foresee. Accordingly, we warn investors to exercise caution when
considering any such forward-looking information herein and that
it would be unreasonable to rely on such statements as creating
any legal rights regarding our future results or plans. We are under
no obligation (and we expressly disclaim any such obligation) to
update or alter any forward-looking statements or assumptions
whether as a result of new information, future events or otherwise,
except as required by law.
Before making any investment decisions and for a detailed discus-
sion of the risks, uncertainties and environment associated with
our business, fully review the sections of this MD&A entitled “Risks
and Uncertainties Affecting our Businesses” and “Government
Regulation and Regulatory Developments”.
ADDITIONAL INFORMATION
Additional information relating to us, including our Annual
Information Form and discussions of our 2008 quarterly results, may
be found on SEDAR at www.sedar.com or on EDGAR at www.sec.gov.
For a glossary of communications and media industry terms, please
refer to the Investor Relations section of rogers.com.
1. CORPORATE OVERVIEW
OUR BUSINESS
We are a diversified Canadian communications and media com-
pany. We are engaged in wireless voice and data communications
services through Rogers Wireless, Canada’s largest wireless provider
and the operator of the country’s only national Global System for
Mobile Communications/High-Speed Packet Access (“GSM/HSPA”)
based network. Through Rogers Cable we are one of Canada’s
largest providers of cable television services as well as high-speed
Internet access, telephony services and video retailing. Through
Rogers Media, we are engaged in radio and television broadcast-
ing, televised shopping, magazines and trade publications, and
sports entertainment. We are publicly traded on the Toronto
Stock Exchange (TSX: RCI.a and RCI.b) and on the New York Stock
Exchange (NYSE: RCI).
For more detailed descriptions of our Wireless, Cable and Media
businesses, see the respective segment discussions that follow.
REVENUE
(In millions of dollars)
ADJUSTED OPERATING
PROFIT
(In millions of dollars)
$4,580
3,201
1,210
$5,503
3,558
1,317
$6,335
3,809
1,496
$1,987
$2,589
916
156
1,016
176
$2,806
1,233
142
2006
2007
2008
2006
2007
2008
Wireless
Cable
Media
Wireless
Cable
Media
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
23
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OUR STR ATEGY
Our business objective is to maximize subscribers, revenue, operat-
ing profit and return on invested capital by enhancing our position
as one of Canada’s leading diversified communications and media
companies. Our strategy is to be the preferred provider of commu-
nications, entertainment and information services to Canadians. We
seek to leverage our networks, infrastructure, sales channels, brand
and marketing resources across the Rogers group of companies by
implementing cross-selling and joint sales distribution initiatives as
well as cost-reduction initiatives through infrastructure sharing, to
create value for our customers and shareholders.
We help to identify and facilitate opportunities for Wireless, Cable
and Media to create bundled product and service offerings at
attractive prices, in addition to implementing cross-marketing and
cross-promotion of products and services to increase sales and
enhance subscriber loyalty. We also work to identify and implement
areas of opportunity for our businesses that will enhance operating
efficiencies by sharing infrastructure, corporate services and sales
distribution channels. We continue to develop brand awareness
and promote the “Rogers” brand as a symbol of quality, innovation
and value of a diversified Canadian media and communications
company.
ADDITIONS TO
CONSOLIDATED PP&E
(In millions of dollars)
CONSOLIDATED
TOTAL ASSETS
(In millions of dollars)
$1,712
$1,796
$2,021
$14,105
$15,325
$17,093
2006
2007
2008
2006
2007
2007
2008
2008
ACQUISITIONS
Acquisition of channel m
On April 30, 2008, we acquired the assets of Vancouver multicultural
television station channel m, from Multivan Broadcast Corporation,
for cash consideration of $61 million. The acquisition was accounted
for using the purchase method with the results of operations con-
solidated with ours effective April 30, 2008.
Acquisition of Aurora Cable T V Limited
On June 12, 2008, we acquired 100% of the outstanding shares of
Aurora Cable TV Limited (“Aurora Cable”) for cash consideration of
$80 million, including a $16 million deposit paid during the first quar-
ter of 2008. In addition, we contributed $10 million to simultaneously
pay down certain credit facilities of Aurora Cable. Aurora Cable pro-
vides cable television, Internet and telephony services in the Town of
Aurora and the community of Oak Ridges, in Richmond Hill, Ontario.
The acquisition was accounted for using the purchase method with the
results of operations consolidated with ours effective June 12, 2008.
Acquisition of Outdoor Life Network
On July 31, 2008, we acquired the remaining two-thirds of the shares
of Outdoor Life Network (“OLN”) that we did not already own, for
cash consideration of $39 million. The acquisition was accounted
for using the purchase method with the results of operations con-
solidated with ours effective July 31, 2008.
Refer to “Critical Accounting Estimates – Purchase Price Allocations”
and Note 4 to the 2008 Audited Consolidated Financial Statements
for more details regarding these transactions.
CONSOLIDATED F INANCIAL AND O PER ATING R ESULTS
See the sections in this MD&A entitled “Critical Accounting Policies”,
“Critical Accounting Estimates” and “New Accounting Standards”
and also the Notes to the 2008 Audited Consolidated Financial
Statements for a discussion of critical and new accounting policies
and estimates as they relate to the discussion of our operating and
financial results below.
We measure the success of our strategies using a number of key
performance indicators as outlined in the section entitled “Key
Performance Indicators and Non-GAAP Measures”. These key per-
formance indicators are not measurements in accordance with
Canadian or U.S. GAAP and should not be considered as alterna-
tives to net income or any other measure of performance under
Canadian or U.S. GAAP. The non-GAAP measures presented in this
MD&A include, among other measures, operating profit, adjusted
operating profit, adjusted operating profit margin, adjusted net
income, and adjusted basic and diluted net income per share. We
believe that the non-GAAP financial measures provided, which
exclude: (i) the impact of the one-time non-cash charge result-
ing from the introduction of a cash settlement feature related to
employee stock options; (ii) stock-based compensation expense; (iii)
integration and restructuring expenses; (iv) the impact of a one-
time charge resulting from the renegotiation of an Internet-related
services agreement; (v) an adjustment for Canadian Radio-television
and Telecommunications Commission (“CRTC”) Part II fees related
to prior periods; and (vi) in respect of net income and net income
per share, debt issuance costs, loss on repayment of long-term
debt, impairment losses on goodwill, intangible assets and other
long-term assets and the related income tax impacts of the above
items, provide for a more effective analysis of our operating per-
formance. See the sections entitled “Key Performance Indicators
and Non-GAAP Measures” and “Supplementary Information: Non-
GAAP Calculations” for further details.
24
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
An overall economic slowdown in Canada, and particularly in
Ontario, has negatively impacted the results of our Wireless, Cable
and Media lines of business during 2008. The challenging economic
conditions have resulted in lower subscriber additions, predomi-
nantly in our Cable business, as well as declines of advertising,
roaming and other revenues. In response to these economic condi-
tions, we have taken action to restructure our employee base to
improve our cost structure going forward. The decline in advertising
revenue has lead to an impairment charge of $294 million related to
our conventional television business, which is fully described in the
section entitled ”Impairment Losses on Goodwill, Intangible Assets
and Other Long-Term Assets”. Despite the economic slowdown, we
are well positioned from a liquidity perspective with $1.8 billion in
available credit under our $2.4 billion committed bank credit facility
that does not mature until July 2013, and have no debt maturities
until May 2011.
Operating Highlights and Significant Developments in 20 08
• Generated growth in annual revenue of 12%, while adjusted
operating profit grew 10% to $4,060 million
• We closed US$1.75 billion aggregate principal amount of invest-
ment grade debt offerings on August 6, 2008, consisting of
US$1.4 billion of 6.8% Senior Notes due 2018, and US$350 million
7.5% Senior Notes due 2038. Proceeds of the offerings were used
in part to fund the $1.0 billion purchase of 20 MHz of Advanced
Wireless Services (“AWS”) spectrum in the spectrum auction.
• We purchased for cancellation 4,077,400 outstanding Class B
Non-Voting shares during the year for $136.7 million under Board
approval to repurchase up to $300 million of outstanding shares.
• In January 2008, we announced an increase in the annual
dividend from $0.50 to $1.00 per Class A Voting and Class B Non-
Voting share.
• In February 2009, we announced an increase in the annual dividend
from $1.00 to $1.16 per Class A Voting and Class B Non-Voting share.
This reflects our Board of Directors’ continued confidence in the
strategies that we have employed to position ourselves as a grow-
ing communications company, while concurrently recognizing the
importance of returning meaningful portions of the growing cash
flows being generated by the business to shareholders.
• At December 31, 2008 we had approximately $1.8 billion in avail-
able credit under our $2.4 billion committed bank credit facility
that matures July 2013. This liquidity position is also enhanced
by the fact that our earliest scheduled debt maturity is in May
2011. This financial position provides us with substantial liquidity
and flexibility, particularly given the current global credit market
challenges.
• In February 2009, our Board of Directors approved the renewal
of a normal course issuer bid (“NCIB”) to repurchase up to
$300 million of our shares on the open market during the follow-
ing twelve months.
• The Company’s founder, President and Chief Executive Officer
Edward S. “Ted” Rogers, passed away on December 2, 2008. Alan
Horn, Chairman of the Board of Rogers Communications Inc.,
was appointed by the Board to serve as acting Chief Executive
Officer as the Board performs a search, considering internal and
external candidates, for a permanent CEO.
• Prior to his death in December 2008, Edward S. “Ted” Rogers con-
trolled RCI through his ownership of voting shares of a private
holding company. RCI has been informed that under Mr. Rogers’
estate arrangements, those voting shares, and consequently
voting control of RCI and its subsidiaries, passed to the Rogers Control
Trust, a trust of which the trust company subsidiary of a Canadian
chartered bank is Trustee and members of the family of the late
Mr. Rogers are beneficiaries. Private Rogers family holding com-
panies controlled by the Rogers Control Trust together own
approximately 90.9% of the Class A Voting shares of RCI and 7.5%
of the Class B Non-Voting shares. The governance structure of the
Rogers Control Trust comprises the Control Trust Chair (who acts
in effect as the chief executive of the Control Trust), the Control
Trust Vice-Chair, the corporate trustee, and a committee of advisors
(the Advisory Committee). The Advisory Committee members are
appointed in accordance with the estate arrangements and include
members of the Rogers family, trustees of a Rogers family trust and
other individuals, including certain directors of RCI.
Year Ended December 31, 20 08 Compared to Year Ended
December 31, 20 07
For the year ended December 31, 2008, Wireless, Cable and Media
represented 56%, 34% and 13% of our consolidated revenue,
respectively, offset by corporate items and eliminations of 3%.
Wireless, Cable and Media also represented 69%, 30% and 4% of
our consolidated adjusted operating profit, respectively, offset by
corporate items and eliminations of 3%.
For the year ended December 31, 2007, Wireless, Cable and Media
represented 54%, 35% and 13% of our consolidated revenue,
respectively, offset by corporate items and eliminations of 2%.
Wireless, Cable and Media also represented 70%, 27% and 5% of
our consolidated adjusted operating profit, respectively, offset by
corporate items and eliminations of 2%.
For more detailed discussions of Wireless, Cable and Media, refer
to the respective segment discussions below.
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
25
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Summarized Consolidated Financial Results
Years ended December 31,
(In millions of dollars, except per share amounts)
Operating revenue
Wireless
Cable
Cable Operations
RBS
Rogers Retail
Corporate items and eliminations
Media
Corporate items and eliminations
Total
Adjusted operating profit (loss) (1)
Wireless
Cable
Cable Operations
RBS
Rogers Retail
Media
Corporate items and eliminations
Adjusted operating profit (1)
Stock option plan amendment (3)
Stock-based compensation recovery (expense) (3)
Integration and restructuring expenses (4)
Contract renegotiation fee (5)
Adjustment for CRTC Part II fees decision (6)
Operating profit (1)
Other income and expense, net (7)
Net income
Net income per share:
Basic
Diluted
As adjusted: (2)
Net income
Net income per share:
Basic
Diluted
Additions to property, plant and equipment (“PP&E”) (1)
Wireless
Cable
Cable Operations
RBS
Rogers Retail
Media
Corporate
Total
2008
2007
% Chg
$
6,335 $
5,503
2,878
526
417
(12)
2,603
571
393
(9)
3,809
1,496
(305)
3,558
1,317
(255)
11,335
10,123
2,806
2,589
1,171
59
3
1,233
142
(121)
4,060
–
100
(51)
–
(31)
1,008
12
(4)
1,016
176
(78)
3,703
(452)
(62)
(38)
(52)
–
4,078
3,076
3,099
2,462
$
1,002 $
637
$
1.57 $
1.57
1.00
0.99
$
1,260 $
1,066
$
1.98 $
1.98
1.67
1.66
$
929 $
822
829
36
21
886
81
125
710
83
21
814
77
83
$
2,021 $
1,796
15
11
(8)
6
33
7
14
20
12
8
16
n/m
n/m
21
(19)
55
10
n/m
n/m
34
n/m
n/m
32
25
57
57
59
18
19
19
13
17
(57)
–
9
5
51
13
(1) As defined. See the sections entitled “Supplementary Information: Non-GAAP Calculations” and “key Performance Indicators and Non-GAAP Measures”. Operating profit should not be considered as a substi-
tute or alternative for operating income or net income, in each case determined in accordance with Canadian generally accepted accounting principles (“GAAP”). See the section entitled “Reconciliation of Net
Income to Operating Profit and Adjusted Operating Profit for the Period” for a reconciliation of operating profit and adjusted operating profit to operating income and net income under Canadian GAAP and
the section entitled “key Performance Indicators and Non-GAAP Measures”.
(2) For details on the determination of the ‘as adjusted’ amounts, which are non-GAAP measures, see the sections entitled “Supplementary Information: Non-GAAP Calculations” and “key Performance
Indicators and Non-GAAP Measures”. The ‘as adjusted’ amounts presented above are reviewed regularly by management and our Board of Directors in assessing our performance and in making decisions
regarding the ongoing operations of the business and the ability to generate cash flows. The ‘as adjusted’ amounts exclude (i) the impact of a one-time non-cash charge related to the introduction of a cash
settlement feature for employee stock options; (ii) stock-based compensation (recovery) expense; (iii) integration and restructuring expenses; (iv) the impact of a one-time charge resulting from the renego-
tiation of an Internet-related services agreement; (v) an adjustment for Canadian Radio-television and Telecommunications Commission (“CRTC”) Part II fees related to prior periods; and (vi) in respect of net
income and net income per share, debt issuance costs, loss on repayment of long-term debt, impairment losses on goodwill, intangible assets and other long-term assets; and the related income tax impact of
the above amounts.
(3) See the section entitled “Stock-based Compensation”.
(4) Costs incurred relate to severances resulting from the restructuring of our employee base to improve our cost structure in light of the declining economic conditions, the integration of Call-Net Enterprises Inc. (“Call-
Net”), Futureway Communications Inc. (“Futureway”) and Aurora Cable TV Limited (“Aurora Cable”), the restructuring of Rogers Business Solutions (“RBS”), and the closure of certain Rogers Retail stores.
(5) One-time charge resulting from the renegotiation of an Internet-related services agreement. See the section entitled “Cable Operations Operating Expenses”.
(6) Relates to an adjustment for CRTC Part II fees related to prior periods. See the section entitled “Government Regulation and Regulatory Developments”.
(7) See the section entitled “Reconciliation of Net Income to Operating Profit and Adjusted Operating Profit for the Period”.
n/m: not meaningful.
26
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Our consolidated revenue was $11,335 million in 2008, an increase of
$1,212 million, or 12%, from $10,123 million in 2007. Of the increase,
Wireless contributed $832 million, Cable $251 million, and Media
$179 million, offset by an increase in corporate items and elimina-
tions of $50 million.
Our consolidated adjusted operating profit was $4,060 million,
an increase of $357 million, or 10%, from $3,703 million in 2007. Of
this increase, Wireless contributed $217 million, Cable contributed
$217 million, and Media partially offset the increase with a decline
of $34 million. On a consolidated basis, we recorded net income of
$1,002 million for the year ended December 31, 2008, compared to
net income of $637 million in 2007.
Refer to the respective individual segment discussions for details of
the revenue, operating expenses, operating profit and additions to
PP&E of Wireless, Cable and Media.
20 08 Performance Against Targets
The following table sets forth the guidance ranges for selected full
year financial and operating metrics that we provided for 2008, as
revised during the year, versus the actual results we achieved for
the year. Certain of the measures included below are not defined
under Canadian GAAP.
(Millions of dollars, except subscribers)
Consolidated
Revenue
Adjusted operating profit (1)
PP&E expenditures
Free cash flow (2)
Revenue
Wireless (network revenue)
Cable Operations
Media
Adjusted operating profit (1)
Wireless (3)
Cable Operations
Media (4)
Additions to PP&E
Wireless
Cable Operations
Media
Original 2008 Guidance
(At January 7, 2008)
Updated from Original
Guidance (At October 28, 2008)
2008
Actual
$ 11,200
4,000
1,900
1,400
$ 11,500
4,200
2,100
1,600
$ 11,200
4,000
1,900
1,400
to
to
to
to
to
to
to
$
$
$
5,800
2,900
1,525
2,875
1,130
165
to
to
to
850
750
80
to
to
to
to
to
to
to
to
to
to
5,800
2,900
1,480
2,800
1,130
145
to
to
to
850
750
80
to
to
to
$ 11,500 $ 11,335
4,060
2,021
1,464
4,100
2,100
1,600
$
$
$
5,900 $ 5,843
2,878
2,950
1,496
1,510
2,850 $
1,190
155
2,820
1,171
142
925 $
830
95
929
829
81
550
410
to
to
625
440
604
365
$
$
$
$
$
$
5,900
2,950
1,575
2,975
1,190
180
925
830
95
625
625
Net subscriber additions (000s)
Retail wireless postpaid and prepaid
Residential cable revenue generating units (RGUs) (5)
550
550
to
to
(1) Excludes the impact of stock-based compensation expense, integration and restructuring expenses and a one-time charge related to CRTC Part II fees.
(2) Free cash flow is defined as adjusted operating profit less PP&E expenditures and interest expense and is not a term defined under Canadian GAAP.
(3) Excludes operating losses related to the Inukshuk fixed wireless initiative of $14 million in 2008.
(4) Includes losses from Sports Entertainment of $33 million in 2008.
(5) Residential cable RGUs are comprised of basic cable subscribers, digital cable households, residential high-speed Internet subscribers and residential cable and circuit-switched telephony subscribers.
Our actual 2008 consolidated revenue, adjusted operating profit,
PP&E expenditures and free cash flow were within the updated
guidance ranges provided. Cable Operations revenue, Media rev-
enue and Cable RGUs were below the guidance that was provided.
Cable Operations revenue and RGUs were below guidance resulting
from softness in the Canadian economy, saturation of the Internet
market and competitive offerings in the market. The Media rev-
enue was also below the guidance range provided resulting from
softness in the Canadian economy which led to lower advertising
revenues. PP&E additions at Wireless exceeded our guidance par-
tially in order to support subscriber growth as well as investments
in growth initiatives. See the section entitled “Wireless Additions
to Property, Plant and Equipment” for further details on Wireless
PP&E additions.
Stock-based Compensation
On May 28, 2007, our employee stock option plans were amended
to attach cash settled share appreciation rights (“SARs”) to all new
and previously granted options. The SAR feature allows the option
holder to elect to receive in cash an amount equal to the intrin-
sic value, being the excess market price of the Class B Non-Voting
share over the exercise price of the option, instead of exercising
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
27
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
the option and acquiring Class B Non-Voting shares. All outstand-
ing stock options are now classified as liabilities and are carried at
their intrinsic value, as adjusted for vesting, measured as the differ-
ence between the current stock price and the option exercise price.
The intrinsic value of the liability is marked-to-market each period
and is amortized to expense over the period in which the related
services are rendered, which is usually the graded vesting period,
or, as applicable, over the period to the date an employee is eligible
to retire, whichever is shorter. As a result of this amendment, we
recorded a liability of $502 million, a one-time non-cash charge of
$452 million to revalue the outstanding options at May 28, 2007,
and a $50 million decrease in contributed surplus. This charge was
partially offset by a future income tax recovery of $160 million,
which was recorded as a result of the amendment.
or binomial models on the date of grant. Under this method, the
estimated fair value was amortized to expense over the period in
which the related services were rendered, which was generally
the vesting period or, as applicable, over the period to the date an
employee was eligible to retire, whichever was shorter. Subsequent
to May 28, 2007, the liability for stock-based compensation expense
is recorded based on the intrinsic value of the options, as described
above, and the expense is impacted by the change in the price
of our Class B Non-Voting shares during the life of the option. At
December 31, 2008, we have a liability of $278 million related to
stock-based compensation recorded at its intrinsic value, including
stock options, restricted share units and deferred share units. In the
year ended December 31, 2008, $106 million (2007 – $80 million) was
paid to holders upon exercise of restricted share units and stock
options using the SAR feature.
Previously, all stock options were classified as equity and were mea-
sured at the estimated fair value established by the Black-Scholes
A summary of stock-based compensation expense is as follows:
(In millions of dollars)
Wireless
Cable
Media
Corporate
Stock-based Compensation
(Recovery) Expense Included in
Operating, General and
Administrative Expenses
Years ended December 31,
2008
2007
One-time
Non-cash Charge
Upon Adoption
in Q2 2007
$
46 $
113
84
209
(5) $
(32)
(17)
(46)
$
452 $
(100) $
11
11
10
30
62
Reconciliation of Net Income to Operating Profit and Adjusted
Operating Profit for the Period
The items listed below represent the consolidated income and
expense amounts that are required to reconcile net income as
defined under Canadian GAAP to the non-GAAP measures operat-
ing profit and adjusted operating profit for the year. See the section
entitled “Supplementary Information: Non-GAAP Calculations”
for a full reconciliation to adjusted operating profit, adjusted net
income and adjusted net income per share. For details of these
amounts on a segment-by-segment basis and for an understand-
ing of intersegment eliminations on consolidation, the following
section should be read in conjunction with Note 3 to the 2008
Audited Consolidated Financial Statements entitled “Segmented
Information”.
Years ended December 31,
(In millions of dollars)
Net income
Income tax expense
Other expense (income), net
Change in the fair value of derivative instruments
Loss on repayment of long-term debt
Foreign exchange loss (gain)
Debt issuance costs
Interest on long-term debt
Operating income
Impairment losses on goodwill, intangible assets and other long-term assets
Depreciation and amortization
Operating profit
Stock option plan amendment
Stock-based compensation (recovery) expense
Integration and restructuring expenses
Adjustment for CRTC Part II fees decision
Contract renegotiation fee
Adjusted operating profit
28
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
2008
2007
% Chg
$
1,002 $
424
(28)
(64)
–
99
16
575
2,024
294
1,760
4,078
–
(100)
51
31
–
637
249
4
34
47
(54)
–
579
1,496
–
1,603
3,099
452
62
38
–
52
$
4,060 $
3,703
57
70
n/m
n/m
n/m
n/m
n/m
(1)
35
n/m
10
32
n/m
n/m
34
n/m
n/m
10
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
$684
$1,260
$1,066
CONSOLIDATED ADJUSTED
NET INCOME
(In millions of dollars)
Net Income and Net Income
per Share
We recorded net income of
$1,002 million in 2008, or basic
and diluted net income per
share of $1.57, compared to
net income of $637 million, or
basic net income per share of
$1.00 (diluted – $0.99) for the
year ended December 31, 2007.
This increase in net income was
primarily due to the growth
in operating income, offset by
impairment losses on good-
will, intangible assets and
other long-term assets related
to our conventional television
reporting unit of $294 million
and foreign exchange losses of
$99 million mainly related to foreign exchange on our U.S. dollar-
denominated debt that is not hedged for accounting purposes,
partially offset by $64 million related to the change in the fair value
of derivative instruments.
2007
2007
2006
2008
2008
Income Tax Expense
Due to our non-capital loss carryforwards, our income tax expense
for the years ended December 31, 2008 and 2007 substantially repre-
sents non-cash income taxes. As illustrated in the table below, our
effective income tax rate for the years ended December 31, 2008
and 2007 was 29.7% and 28.1%, respectively. The effective income
tax rate for the year ended December 31, 2008 was less than the
2008 statutory income tax rate of 32.7% primarily due to an income
tax credit of $65 million recorded in respect of the harmonization of
the Ontario provincial income tax system with the Canadian federal
income tax system. The resulting income tax credit will be available
to reduce future Ontario income taxes over the next five years. In
addition, we recorded a future income tax recovery of $33 million
relating to differences between the current year statutory rate
and the income tax rate that is expected to apply when our future
income tax assets and liabilities are realized or settled. During 2008,
we recorded impairment losses on goodwill and intangible assets
that are not deductible for income tax purposes (see Note 7 to the
2008 Audited Consolidated Financial Statements). These losses do
not give rise to any tax benefits. Accordingly, our reconciliation of
income tax expense includes an increase of $51 million in respect of
this item.
Income tax expense varies from the amounts that would be com-
puted by applying the statutory income tax rate to income before
income taxes for the following reasons:
Years ended December 31,
(In millions of dollars)
Statutory income tax rate
Income before income taxes
Income tax expense at statutory income tax rate on income before income taxes
Increase (decrease) in income taxes resulting from:
Ontario harmonization credit
Stock-based compensation
Vidéotron Ltée termination payment
Change in valuation allowance
Effect of tax rate changes
Impairment losses on goodwill and intangible assets not deductible for income tax purposes
Difference between rates applicable to subsidiaries
Benefits related to changes to prior year income tax filing positions and other items
Income tax expense
Effective income tax rate
2008
2007
32.7%
35.2%
$
$
1,426 $
466 $
886
312
(65)
5
–
19
(33)
51
(2)
(17)
–
(17)
(25)
(20)
47
–
(12)
(36)
$
424 $
249
29.7%
28.1%
Other Expense (Income)
Other income of $28 million in 2008 was primarily associated with
investment income received from certain of our investments. In
2007, investment income received from certain of our investments
was offset by a writedown to reflect what was deemed to be an
“other than temporary decline” in the value of an investment, and
certain other writedowns, resulting in a net expense of $4 million.
Change in Fair Value of Derivative Instruments
In 2008, the changes in fair value of the derivative instruments were
primarily the result of the impact of the changes in the value of
the Canadian dollar relative to that of the U.S. dollar related to the
cross-currency interest rate exchange agreements (“Cross-Currency
Swaps”) hedging the US$350 million Senior Notes due 2038 that
have not been designated as hedges for accounting purposes. We
have recorded our Cross-Currency Swaps at an estimated credit-
adjusted mark-to-market valuation. For the impact, refer to the
section entitled “Fair Market Value Asset and Liability for Cross-
Currency Swaps”.
In 2007, the changes in fair value of the derivative instruments were
primarily the result of the changes in the Canadian dollar relative
to that of the U.S. dollar, as described below, and the resulting
change in fair value of our Cross-Currency Swaps not accounted for
as hedges.
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
29
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Loss on Repayment of Long-Term Debt
During 2007, we redeemed Wireless’ US$155 million 9.75% Senior
Debentures due 2016 and Wireless’ US$550 million Floating Rate
Senior Notes due 2010. These redemptions resulted in a loss on
repayment of long-term debt of $47 million, including aggregate
redemption premiums of $59 million offset by a write-off of the fair
value increment arising from purchase accounting of $12 million.
Foreign Exchange Gain (Loss)
During 2008, the Canadian dollar weakened by 24 cents versus
the U.S. dollar resulting in a foreign exchange loss of $99 million,
primarily related to US$750 million of U.S. dollar-denominated
long-term debt that is not hedged for accounting purposes. During
2007, the foreign exchange gain of $54 million arose primarily from
the strengthening of the Canadian dollar by 18 cents versus the
U.S. dollar, favourably affecting the translation of our U.S. dollar-
denominated long-term debt that was not hedged for accounting
purposes.
Debt Issuance Costs
We recorded debt issuance costs of $16 million during 2008 due
to the fees and expenses incurred in connection with the
US$1.75 billion investment grade debt offerings that were closed on
August 6, 2008.
Depreciation and Amortization Expense
The increase in depreciation and amortization expense for the year
ended December 31, 2008, over 2007, primarily reflects an increase
in depreciation on PP&E expenditures.
Integration and Restructuring Expenses
During the year ended December 31, 2008, we incurred $38 mil-
lion of restructuring expenses related to severances resulting from
targeted restructuring of our employee base to improve our cost
structure in light of the declining economic conditions. In addition,
we incurred integration expenses of $9 million related to the inte-
gration of previously acquired businesses and certain restructuring
and $4 million for the closure of 18 underperforming Rogers Retail
locations.
Adjusted Operating Profit
Wireless and Cable both contributed to the increase in adjusted
operating profit for the year ended December 31, 2008. This increase
was partially offset by a decrease in Media’s adjusted operating
profit for 2008 compared to 2007. Wireless’ adjusted operating
profit reflects significant costs associated with the heavy sales
volumes of smartphone devices. Refer to the individual segment
discussions for details of the respective increases and decreases in
adjusted operating profit.
Interest on Long-Term Debt
Despite the $0.9 billion net increase in long-term debt, including the
impact of Cross-Currency Swaps, at December 31, 2008 compared
to December 31, 2007, interest expense declined marginally in 2008
reflecting the 0.24% decrease in the weighted average interest
rate on our long-term debt, which was 7.29% at December 31, 2008
compared to 7.53% at December 31, 2007. This decrease was largely
due to the following: the full year impact of the 2007 repayments
of three higher coupon debt issues; the 2008 recouponing of three
Cross-Currency Swaps aggregating US$575 million notional principal
amount at Canadian dollar interest rates lowered by approximately
1.0%; and, lower floating interest rates on our bank debt in 2008.
Operating Income
The increase in our operating income, compared to the prior year,
is primarily due to the growth in revenue of $1,212 million exceed-
ing the growth in operating expenses, including integration and
restructuring expenses, of $684 million. See the section entitled
“Segment Review” for a detailed discussion on respective segment
results.
Impairment Losses on Goodwill, Intangible Assets and Other
Long-Term Assets
In the fourth quarter of 2008, we determined that the fair value
of the conventional television business of Media was lower than
its carrying value. This primarily resulted from weakening of indus-
try expectations and declines in advertising revenues amidst the
slowing economy. As a result, we recorded an aggregate non-cash
impairment charge of $294 million with the following components:
$154 million related to goodwill, $75 million related to broadcast
licences and $65 million related to intangible assets and other long-
term assets.
Consolidated adjusted operating profit increased to $4,060 million
in 2008, compared to $3,703 million in 2007. Adjusted operating
profit excludes: (i) the impact of a $452 million one-time non-cash
charge related to the introduction of a cash settlement feature for
stock options during 2007; (ii) stock-based compensation (recov-
ery) expense of $(100) million in 2008 and $62 million in 2007;
(iii) integration and restructuring expenses of $51 million in 2008 and
$38 million in 2007; (iv) the impact of a one-time charge of
$52 million resulting from the renegotiation of an Internet-related
services agreement in 2007; and (v) an adjustment for CRTC Part II
fees related to prior periods of $31 million in 2008. See the section
entitled “Government Regulation and Regulatory Developments”
for further details.
For details on the determination of adjusted operating profit, which
is a non-GAAP measure, see the sections entitled “Supplementary
Information: Non-GAAP Calculations” and “Key Performance
Indicators and Non-GAAP Measures”.
Employees
Employee remuneration represents a material portion of our
expenses. At December 31, 2008, we had approximately 25,800
full-time equivalent employees (“FTEs”) across all of our operating
groups, including our shared services organization and corporate
office, representing an increase of approximately 1,400 from the
level at December 31, 2007. The increase is primarily due to an
increase in our shared services staffing, partially offset by reduc-
tions associated with operational efficiencies. Total remuneration
paid to employees (both full and part-time) in 2008 was approxi-
mately $1,566 million, a decrease of approximately $13 million from
$1,579 million in 2007. The decrease in remuneration paid to employ-
ees is primarily attributed to the change in stock prices resulting
in a $100 million recovery to stock-based compensation which is
partially offset by an increase in the FTEs compared to 2007.
30
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
20 09 FINANCIAL AND OPER ATING GUIDANCE
The following table outlines our financial and operational guid-
ance for the full year 2009, which was publicly issued on February
18, 2009. Certain of the measures included below are not defined
under Canadian GAAP. See the sections entitled “Supplementary
Information: Non-GAAP Calculations” and “Key Performance
Indicators and Non-GAAP Measures” for further details. This infor-
mation is forward-looking and should be read in conjunction with
the section above entitled “Caution Regarding Forward-Looking
Statements, Risks and Assumptions”.
(Millions of dollars, except subscribers)
Consolidated
Revenue (1)
Adjusted operating profit (2)
Additions to PP&E (3)
Free cash flow (4)
Annualized dividend
Supplementary Detail:
Revenue
Wireless (network revenue)
Cable Operations (5)
Media
Adjusted operating profit (2)
Wireless
Cable Operations (5)
Media (6)
Additions to PP&E
Wireless
Cable Operations
2008
Actual
2009
Guidance Range
$ 11,335
4,060
2,021
1,464
Up 5% to 9%
Up 3% to 8%
(10%) to 0%
Up 9% to 23%
$
1.00
$1.16
$
$
$
5,843
2,878
1,496
2,806
1,171
142
929
829
Up 6% to 10%
Up 6% to 8%
4%
(6%) to
Up 5% to 9%
Up 6% to 10%
2%
(19%) to
(10%) to
(16%) to
(2%)
(7%)
(1) Consolidated revenue, includes revenue from Wireless equipment, RBS, Rogers Retail and Corporate items and eliminations in addition to Wireless Network, Cable Operations and Media revenue.
(2) Excludes stock-based compensation expense and integration and restructuring related expenditures.
(3) Consolidated additions to PP&E includes expenditures related to billing system development, Rogers Media and corporately owned real estate in addition to Wireless and Cable Operations PP&E expenditures.
(4) Free cash flow is defined as adjusted operating profit less PP&E expenditures and interest expense and is not a term defined under Canadian GAAP.
(5) Includes cable television, residential high-speed Internet and residential telephony services; excludes Rogers Business Solutions and Rogers Retail.
(6) Includes losses from Sports Entertainment estimated at $20 million in 2009.
2. SEGMENT REVIEW
W I R E L ESS
WIRELESS B USINESS
Wireless is the largest Canadian wireless communications service
provider, serving approximately 8.0 million retail voice and data
subscribers at December 31, 2008, representing approximately 37%
of Canadian wireless subscribers. Wireless operates a GSM/General
Packet Radio Service (“GSM/GPRS”) network, with Enhanced
Data for GSM Evolution (“EDGE”) technology and the next gen-
eration High Speed Packet Access (“HSPA”) network. Wireless is
Canada’s only national carrier operating on the world standard
GSM technology platform. The GSM network provides coverage
to approximately 94.8% of Canada’s population. Wireless has also
2008 WIRELESS NETWORK REVENUE MIX
(%)
Postpaid 95%
Prepaid 5%
deployed a next generation wireless data technology called UMTS/
HSPA (“Universal Mobile Telephone System/High-Speed Packet
Access”) across the major markets in Canada representing 75.6%
of the population and has UMTS/HSPA roaming in 70 interna-
tional destinations as well as access to these services across the U.S.
through roaming agreements with various wireless operators. Its
subscribers also have access to wireless voice service internationally
in 211 international destinations and wireless data service inter-
nationally in 162 international destinations, including throughout
Europe, Asia, Latin America and Africa, through roaming agree-
ments with other GSM wireless providers.
Wireless Products and Services
Wireless offers wireless voice, data and messaging services across
Canada. Wireless voice services are available in either postpaid or
prepaid payment options. In addition, the network provides cus-
tomers with advanced high-speed wireless data services, including
mobile access to the Internet, wireless e-mail, digital picture and
video transmission, mobile video, music downloading, video calling
and two-way short messaging service (“SMS”).
Wireless Distribution
Wireless markets its products and services under both the Rogers
Wireless and Fido brands through an extensive nationwide distribu-
tion network of over 3,500 dealer and retail locations across Canada
(excluding Rogers Retail locations, which is a segment of Cable), sell-
ing subscriptions to service plans, handsets and prepaid cards and
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
31
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
thousands of additional locations selling prepaid cards. Wireless’
nationwide distribution network includes: an independent dealer
network; Rogers Wireless and Fido stores which, effective January
2007, are managed by Rogers Retail; major retail chains; and conve-
nience stores. Wireless also offers many of its products and services
through telemarketing and through a retail agreement with Rogers
Retail, as well as on the Rogers.com and Fido e-business websites.
The information contained in or connected to our websites is not a
part of and not incorporated into this MD&A.
Wireless Networks
Wireless is a facilities-based carrier operating its wireless net-
works over a broad, national coverage area, much of which is
interconnected by its own fibre-optic and microwave transmission
infrastructure. The seamless, integrated nature of its networks
enables subscribers to make and receive calls and to activate net-
work features anywhere in Wireless’ coverage area and in the
coverage area of roaming partners as easily as if they were in their
home area.
Wireless operates a digital wireless GSM network in the 1900 mega-
hertz (“MHz”) and 850 MHz frequency bands across its national
footprint. Prior to 2002, the company operated on analog and
TDMA cellular networks, which were decommissioned during
2007. The GSM network, which operates seamlessly between the
two frequencies, provides integrated voice and high-speed packet
data transmission service capabilities and utilizes GPRS and EDGE
technologies for wireless data transmission.
During 2007, Wireless deployed UMTS/HSPA technology, the next
phase of the evolution of the GSM/EDGE platform, which delivers
high mobility, high bandwidth wireless access for voice and data
services across major urban centres. Deployed in primarily 850MHz,
with some specific locations operating in 1900MHz, the UMTS/HSPA
network covers 75.6% of Canada’s population.
Wireless holds 25 MHz of contiguous spectrum across Canada in the
850 frequency range and 60 MHz in the 1900 frequency range across
the country, with the exception of southwestern Ontario, northern
Québec, and the Yukon, Northwest and Nunavut territories, where
Wireless holds 50 MHz in the 1900 frequency range.
In addition, Wireless participated in the AWS spectrum auction
in Canada which commenced on May 27, 2008 and concluded on
July 21, 2008. Wireless acquired 20 MHz of AWS spectrum, which
operates in the 1700/2100 MHz frequency range, across all 13 prov-
inces and territories with winning bids that totalled approximately
$1.0 billion, or approximately $1.67/MHz/pop. Final payment was
submitted to Industry Canada on September 3, 2008 and Rogers
was granted its licences on December 22, 2008.
Wireless also holds certain broadband fixed wireless spectrum
in the 2300 MHz, 2500 MHz and 3500 MHz frequency ranges. In
September 2005, Wireless, together with Bell Canada, announced
the formation of an equally-owned joint venture called Inukshuk
to construct a pan-Canadian wireless broadband network that will
be based on the evolving World Interoperability for Microwave
Access (“WiMAX”) standards. Both companies have contributed
fixed wireless spectrum holdings to the joint venture, along with
access to their respective cellular towers and network backhaul
32
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
facilities. The fixed wireless network acts as a wholesale provider of
capacity to each of the joint venture partners, who in turn market,
sell, support and bill for their respective service offerings over the
network.
WIRELESS S TR ATEGY
Wireless’ goal is to drive profitable subscriber and revenue growth
within the Canadian wireless communications industry, and its
strategy is designed to maximize cash flow and return on invested
capital. The key elements of its strategy are as follows:
• Enhancing its scale and competitive position in the Canadian
wireless communications market;
• Focusing on voice and data services that are attractive to youth,
families, and small and medium-sized businesses to optimize its
customer mix;
• Delivering on customer expectations by improving handset reli-
ability, network quality and customer service while reducing
subscriber deactivations, or churn;
• Increasing revenue from existing customers by utilizing analyti-
cal tools to target customers likely to purchase enhanced services
such as voicemail, caller line ID, text messaging and wireless data
services;
• Enhancing sales distribution channels to increase focus on tar-
geted customer segments;
• Maintaining the most technologically advanced, high quality and
pervasive wireless network possible; and
• Leveraging relationships across the Rogers group of companies
to provide bundled product and service offerings at attractive
prices, in addition to implementing cross-selling, joint sales dis-
tribution initiatives and infrastructure sharing initiatives.
WIRELESS POSTPAID
MONTHLY ARPU
($)
WIRELESS POSTPAID
MONTHLY CHURN
(%)
$67.27
$72.21
$75.27
1.32%
1.15%
1.10%
2006
200 7
2007
2008
2008
2006
200 7
2007
2008
2008
RECENT WIRELESS INDUSTRY TRENDS
Focus on Customer Retention
The wireless communications industry’s current market penetra-
tion in Canada is estimated to be 66% of the population, compared
to approximately 89% in the U.S. and approximately 125% in the
United Kingdom, and Wireless expects the Canadian wireless indus-
try to continue to grow by approximately 4 to 5 percentage points
of penetration each year for the next several years. This deeper
penetration drives a need for increased focus on customer satisfac-
tion, the promotion of new data and voice services and features
and customer retention.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Demand for Sophisticated Data Applications
The ongoing development of wireless data transmission technolo-
gies has led developers of wireless devices, such as handsets and
other hand-held devices, to develop more sophisticated wireless
devices with increasingly advanced capabilities, including access
to e-mail and other corporate information technology platforms,
news, sports, financial information and services, shopping services,
photos, music, and streaming video clips, mobile television and
other functions. Wireless believes that the introduction of such new
applications will drive the growth for data transmission services.
Migration to Next Generation Wireless Technology
The ongoing development of wireless data transmission technolo-
gies and the increased demand for sophisticated wireless services,
especially data communications services, have led wireless provid-
ers to migrate towards the next generation of digital voice and
data broadband wireless networks. These networks are intended
to provide wireless communications with wireline quality sound,
far higher data transmission speeds and streaming video capabili-
ties. These networks support a variety of increasingly advanced
data applications, including broadband Internet access, multime-
dia services and seamless access to corporate information systems,
including desktop, client and server-based applications that can be
accessed on a local, national or international basis.
Development of Additional Technologies
In addition to the two main technology paths of the mobile/
broadband wireless industry, namely GSM/HSPA and Code Division
Multiple Access/Evolution Data Optimized (“CDMA/EVDO”), three
other significant broadband wireless technologies are in the
process of development: WiFi, WiMAX and Long-term Evolution
(“LTE”). These technologies may accelerate the widespread
adoption of digital voice and data networks.
WiFi (the IEEE 802.11 industry standard) allows suitably equipped
devices, such as laptop computers and personal digital assistants,
to connect to a local area wireless access point. These access
points utilize unlicenced spectrum and the wireless connection is
only effective within a local area radius of approximately 50-100
metres of the access point, and provide speeds similar to a wired
local area network (“LAN”) environment (most recently the version
designated as 802.11n). As the technology is primarily designed for
in-building wireless access, many access points must be deployed
to cover the selected local geographic area, and must also be inter-
connected with a broadband network to supply the connectivity
to the Internet. Future enhancements to the range of WiFi service
and the networking of WiFi access points may provide additional
opportunities for wireless operators or municipal WiFi network
operators, each providing capacity and coverage under the appro-
priate circumstances.
WiMAX (the IEEE 802.16e standard) is a relatively new fourth
generation (“4G”) technology that is being developed to enable
broadband wireless services over a wide area at a cost point to
enable mass market adoption. By contrast with WiFi, WiMAX is
a cellular-like technology that operates in defined, licenced fre-
quency bands and is thereby not hampered by interference from
other applications and services using the same frequencies. The
technology is designed to provide similar coverage and capabilities
to traditional cellular networks (depending upon the amount of
spectrum allocated and available). There are two main applications
of WiMAX today: fixed (point-to-point) applications for backhaul
and point-to-multipoint broadband access to homes and businesses.
WiMAX is currently an early stage technology with capabilities that
have yet to match existing cellular technologies.
LTE is the GSM community’s 4G broadband wireless technology
evolution path, which is currently in development. LTE is an all
IP-based technology based on a new modulation scheme (orthogo-
nal frequency-division multiplexing) that is specifically designed
to improve efficiency, lower costs, improve and expand the range
of voice and data services available via mobile broadband wireless
networks, make use of new spectrum allocations, and better inte-
grate with other open technology standards. As a 4G technology,
LTE is designed to build on and evolve the capabilities inherent in
UMTS/HSPA, which is the world standard for mobile broadband
wireless. LTE is fully backwards compatible with UMTS/HSPA. LTE
is designed to provide seamless voice and broadband data capa-
bilities and data rates of at least 100Mbps (or greater, dependent
upon spectrum availability).
WIRELESS O PER ATING AND F INANCIAL R ESULTS
For purposes of this discussion, revenue has been classified according
to the following categories:
• Network revenue, which includes revenue derived from:
• postpaid (voice and data), which consists of revenues gener-
ated principally from monthly fees, airtime and long-distance
charges, optional service charges, system access fees and roam-
ing charges;
• prepaid (voice and data), which consists of revenues generated
principally from airtime, usage and long-distance charges;
and
• one-way messaging, which consists of revenues generated
from monthly fees and usage charges.
• Equipment sales, which consist of revenue generated from
the sale of hardware and accessories to independent dealers,
agents and retailers, and directly to subscribers through direct
fulfillment by Wireless’ customer service groups, websites and
telesales, net of subsidies.
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
33
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Operating expenses are segregated into the following categories
for assessing business performance:
• Cost of equipment sales, representing costs related to equipment
revenue;
• Sales and marketing expenses, consisting of costs to acquire new
subscribers, such as advertising, commissions paid to third par-
ties for new activations, remuneration and benefits to sales and
marketing employees as well as direct overheads related to these
activities; and
Summarized Wireless Financial Results
• Operating, general and administrative expenses, consisting pri-
marily of network operating expenses, customer care expenses,
retention costs, including residual commissions paid to distribu-
tion channels, Industry Canada licencing fees associated with
spectrum utilization, inter-carrier payments to roaming partners
and long-distance carriers, CRTC contribution levy and all other
expenses incurred to operate the business on a day-to-day basis.
Years ended December 31,
(In millions of dollars, except margin)
Operating revenue
Postpaid
Prepaid
One-way messaging
Network revenue
Equipment sales
Total operating revenue
Operating expenses before the undernoted
Cost of equipment sales
Sales and marketing expenses
Operating, general and administrative expenses
Adjusted operating profit (1)(2)
Stock option plan amendment (3)
Stock-based compensation recovery (expense) (3)
Integration and restructuring expenses (4)
Operating profit (1)
2008
2007
% Chg
$
5,548 $
285
10
5,843
492
4,868
273
13
5,154
349
6,335
5,503
1,005
691
1,833
703
653
1,558
3,529
2,914
2,806
–
5
(14)
2,589
(46)
(11)
–
$
2,797 $
2,532
14
4
(23)
13
41
15
43
6
18
21
8
n/m
n/m
n/m
10
Adjusted operating profit margin as % of network revenue (1)
Additions to PP&E (1)
48.0%
50.2%
$
929 $
822
13
(1) As defined. See the sections entitled “key Performance Indicators and Non-GAAP Measures” and “Supplementary Information: Non-GAAP Calculations”.
(2) Adjusted operating profit includes a loss of $14 million and $31 million related to the Inukshuk wireless broadband initiative for 2008 and 2007, respectively.
(3) See the section entitled “Stock-based Compensation”.
(4) Costs incurred relate to severances resulting from the restructuring of our employee base to improve our cost structure in light of the declining economic conditions.
Wireless Operating Highlights for the Year Ended
December 31, 20 08
• Network revenue increased by 13% to $5,843 million in 2008 from
$5,154 million in 2007.
• Strong subscriber growth continued in 2008, with net postpaid
additions of 537,000 and net prepaid additions of 67,000.
• Postpaid subscriber monthly churn was 1.10% in 2008, compared
to 1.15% in 2007.
• Postpaid monthly average revenue per user (“ARPU”) increased
4% from 2007 to $75.27, aided by strong growth in wireless data
revenue.
• Revenues from wireless data services grew approximately
39% year-over-year to $946 million in 2008 from $683 million in
2007, and represented approximately 16% of network revenue
compared to 13% in 2007.
• Wireless launched the Apple iPhone 3G in Canada on July 11, 2008
and activated approximately 385,000 of the devices during the
second half of the year. Approximately 35% of these activations
were to subscribers new to Wireless with 65% being to existing
Wireless subscribers who upgraded to the iPhone and commit-
ted to new three year term contracts. The vast majority of iPhone
subscribers have attached both voice and monthly data pack-
ages and are generating monthly ARPU considerably above the
monthly ARPU generated from Wireless’ overall subscriber base.
The initial sales volumes of this device drove significantly higher
acquisition and retention costs at Wireless.
• Canada’s AWS spectrum auction ended on July 21, 2008 fol-
lowing 39 days and 331 rounds of bidding with bids totalling
$4.25 billion. Wireless was the only carrier to successfully acquire
20 MHz of AWS spectrum across all 13 provinces and territories
with winning bids that totalled approximately $1.0 billion, or
approximately $1.67/MHz/pop.
34
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
• Wireless announced the launch of its Fido UNO and Rogers Home
Calling Zone plans that allow customers to make unlimited calls
within their home using their wireless phone via a home WiFi
broadband connection. This converged service utilizes technol-
ogy known as Unlicenced Mobile Access (“UMA”) and provides
our customers the convenience of having one phone, one num-
ber, one address book and one voicemail which they can use
inside and outside of their home.
• Availability of the Rogers Portable Internet service was expanded
to now include more than 150 urban and rural communities across
Canada. With this most recent expansion, the Inukshuk joint ven-
ture’s network has become the second largest broadband fixed
wireless network in the world.
Summarized Wireless Subscriber Results
Years ended December 31,
(Subscriber statistics in thousands, except ARPU, churn and usage)
Postpaid
Gross additions (1)
Net additions
Adjustment to postpaid subscriber base (2)
Total postpaid retail subscribers
Average monthly revenue per user (“ARPU”) (3)
Average monthly usage (minutes)
Monthly churn
Prepaid
Gross additions
Net additions
Adjustment to prepaid subscriber base (2)
Total prepaid retail subscribers
ARPU (3)
Monthly churn
2008
2007
Chg
1,341
537
–
6,451
75.27 $
589
1.10%
1,352
581
(65)
5,914
72.21 $
573
1.15%
(11)
(44)
65
537
3.06
16
(0.05%)
632
67
–
1,491
16.65 $
3.31%
635
70
(26)
1,424
16.46 $
3.42%
(3)
(3)
26
67
0.19
(0.11%)
$
$
(1) During the third quarter of 2008, an adjustment associated with laptop wireless data card (“air card”) subscribers resulted in the addition of approximately 11,000 subscribers to Wireless’ postpaid
subscriber base. This adjustment is included in gross additions for the twelve months ended December 31, 2008. Beginning in the third quarter of 2008, air cards are included in the gross additions for
postpaid subscribers.
(2) During 2007, Wireless decommissioned its TDMA and analog networks and simultaneously revised certain aspects of its subscriber reporting for data-only subscribers. The deactivation of the remaining
TDMA subscribers and the change in subscriber reporting resulted in the removal of approximately 65,000 subscribers from Wireless’ postpaid subscriber base and the removal of approximately 26,000
subscribers from Wireless’ prepaid subscriber base. These adjustments are not included in the determination of postpaid or prepaid monthly churn.
(3) As defined. See the section entitled “key Performance Indicators and Non-GAAP Measures”. As calculated in the “Supplementary Information: Non-GAAP Calculations” section.
Wireless Network Revenue
The increase in network revenue in 2008 compared to 2007 was
driven predominantly by the continued growth of Wireless’ post-
paid subscriber base and the year-over-year growth of wireless
data. The 4% year-over-year increase in postpaid ARPU reflects the
impact of higher wireless data revenue, as well as increased usage
of various calling features. The voice component of postpaid ARPU
remained relatively flat during the year, reflecting the impact of
a softer economy on North American roaming, long-distance and
out-of-bucket voice usage combined with a general increase in the
level of competitive intensity.
Wireless’ success in the continued reduction of postpaid churn
reflects targeted customer retention activities and continued
enhancements in network coverage and quality.
LIFE-TIME REVENUE PER
SUBSCRIBER (at end of year)
WIRELESS POSTPAID AND
PREPAID SUBSCRIBERS
(In thousands)
WIRELESS NETWORK
REVENUE
(In millions of dollars)
WIRELESS DATA
REVENUE
(In millions of dollars)
$3,586
$4,018
$4,333
5,398
1,380
5,914
1,424
6,451
1,491
$4,313
$5,154
$5,843
$459
$683
$946
2006
2007
2008
2006
2007
2008
2006
2007
2007
2008
2008
2006
2007
2007
2008
2008
Postpaid
Prepaid
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
35
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
DATA REVENUE PERCENT
OF ARPU (at end of year)
(%)
11.2%
14.4%
17.5%
2006
2007
2008
During 20 0 8 , wireless data
revenue increased by approxi-
mately 39% over 2007, to $946
million. This increase in data
revenue reflects the continued
growth of smartphone and air
card devices which is driving the
use of texts and e-mail, wireless
Internet access, and other wire-
less data services, partially offset
by the impact of certain data
services price reductions made
in the third quarter of 2008. In
2008, data revenue represented
approximately 16% of total net-
work revenue, compared to 13%
in 2007.
Wireless Equipment Sales
The year-over-year increase in revenue from equipment sales,
including activation fees and net of equipment subsidies, reflects
the large volume of smartphones sold during 2008.
Wireless activated more than 1.2 million smartphone devices, includ-
ing iPhone 3G and BlackBerry devices, during 2008. Approximately
43% of these activations were to subscribers new to Wireless with
the other 57% being to existing Wireless subscribers who upgraded
devices, committed to new multi-year term contracts, and in most
cases attached both voice and monthly data packages which gen-
erate considerably above average ARPU. Smartphone devices as
a percent of postpaid gross additions increased to approximately
40% in 2008 from approximately 13% in 2007, while smartphone
devices as a percent of device upgrades increased to approximately
41% in 2008 from approximately 12% in 2007. Because Wireless
incurred significant handset subsidies for each unit activated, the
results of this successful smartphone sales campaign drove signifi-
cantly higher acquisition and retention costs at Wireless.
The high upfront cost associated with adding smartphone sub-
scribers so rapidly is an investment made to obtain customers with
significantly higher than average ARPU for multi-year contracts
which we expect will have the effect in subsequent periods of
being accretive to overall ARPU while reducing overall churn.
Wireless Operating Expenses
Years ended December 31,
(In millions of dollars, except per subscriber statistics)
Operating expenses
Cost of equipment sales
Sales and marketing expenses
Operating, general and administrative expenses
Operating expenses before the undernoted
Stock option plan amendment (1)
Stock-based compensation (recovery) expense (1)
Integration and restructuring expenses (2)
Total operating expenses
Average monthly operating expense per subscriber before sales and marketing expenses (3)
Sales and marketing costs per gross subscriber addition (3)
2008
2007
% Chg
$
1,005 $
691
1,833
3,529
–
(5)
14
703
653
1,558
2,914
46
11
–
$
3,538 $
2,971
$
$
23.09 $
459 $
20.61
401
43
6
18
21
n/m
n/m
n/m
19
12
14
(1) See the section entitled “Stock-based Compensation”.
(2) Costs incurred relate to severances resulting from the restructuring of our employee base to improve our cost structure in light of the declining economic conditions.
(3) As defined. See the section entitled “key Performance Indicators and Non-GAAP Measures”. As calculated in the “Supplementary Information: Non-GAAP Calculations” section. Average monthly operating
expense per subscriber includes retention costs and excludes sales and marketing expenses and stock-based compensation (recovery) expense.
As a result of the significant number of smartphone activations,
certain Wireless metrics for 2008, including cost of equipment sales,
retention costs, cost of acquisition per subscriber and operating
expense per subscriber, increased measurably over the prior year
which had a dilutive impact on Wireless’ operating profit growth.
However, the large majority of smartphone subscribers subscribe to
both voice and data service plans for multi-year terms, which has to
date resulted in these customers generating greater than 150% of
the average subscriber ARPU. These investments in attracting and
retaining smartphone subscribers result in the creation of net posi-
tive lifetime value per subscriber added. Consequently, Wireless’
ARPU levels are expected to be positively impacted over the term of
the smartphone subscribers’ three year contracts. See the sections
entitled “Caution Regarding Forward-Looking Statements, Risks
and Assumptions” and “2009 Financial and Operating Guidance”.
Cost of equipment sales increased during 2008, compared to 2007,
and was primarily the result of the large volume of smartphone
sales.
The year-over-year increases in operating, general and adminis-
trative expenses in 2008, compared to 2007, excluding retention
spending discussed below, were partially driven by growth in
the Wireless subscriber base. In addition, there were higher costs
to support increased usage of wireless data services, as well as
increases in information technology, customer care and credit and
collection costs as a result of the complexity of supporting more
sophisticated devices and services. These costs were partially offset
by savings related to operating and scale efficiencies across various
functions.
36
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Total retention spending, including subsidies on handset upgrades,
was $536 million in 2008, compared to $403 million in 2007. As a
direct result of the smartphone marketing campaign, Wireless had
a higher than normal rate of upgrade activity by existing subscrib-
ers during the year. Approximately 57% of the smartphone device
activations in 2008 were hardware and service plan upgrades by
existing subscribers which drove the largest portion of the increase
in retention, along with growth in the subscriber base, in general,
increasing retention spending compared to prior periods.
Wireless estimates that the incremental hardware subsidy and data
plan commission costs associated with the significant smartphone
volumes during the year drove approximately $200 million of incre-
mental expenses versus what the same volume of devices would
have been with the device sales mix which existed at the end of
2007.
Wireless Adjusted Operating Profit
The moderate increase in year-over-year adjusted operating profit
reflects the significant growth in network revenues, partially offset
by the increase in cost of equipment sales from the smartphone
handset subsidies discussed above. Primarily as a result of the
investment in a significant number of high ARPU, but high subsidy
smartphone activations, Wireless’ adjusted operating profit mar-
gin on network revenue (which excludes equipment sales revenue)
decreased to 48.0% for 2008,
compared to 50.2% in 2007.
Spectrum Auction Conclusion
Wireless participated in the AWS
spectrum auction in Canada
which commenced on May 27,
2008 and concluded on July 21,
2008. Wireless acquired 20 MHz
of AWS spectrum, which operates
in the 1700/2100 MHz frequency
range, across all 13 provinces
and territories with winning bids
that totalled approximately $1.0
billion, or approximately $1.67/
MHz/pop. Final payment was
submitted to Industry Canada on
September 3, 2008 and Rogers
was granted its licences on
December 22, 2008.
WIRELESS ADJUSTED
OPERATING PROFIT
(In millions of dollars)
$1,987
$2,589
$2,806
2006
2007
2007
2008
2008
Wireless Additions to Property, Plant and Equipment
Wireless additions to PP&E, which excludes the acquisition of AWS
spectrum discussed above, are classified into the following categories:
Years ended December 31,
(In millions of dollars)
Additions to PP&E
HSPA
Network – capacity
Network – other
Information and technology and other
Inukshuk
Total additions to PP&E
2008
2007
% Chg
$
315 $
200
259
152
3
316
169
175
147
15
$
929 $
822
(0)
18
48
3
(80)
13
Additions to Wireless PP&E for 2008 reflect spending on network
capacity, such as radio channel additions and network enhancing
features. Additions to PP&E associated with the deployment of
HSPA were mainly for the continued roll-out to various markets
across Canada and the upgrade to faster network throughput
speeds. Other network-related PP&E additions included national
site build activities, additional spending on test and monitoring
equipment, network sectorization work, operating support system
activities, investments in network reliability and renewal initia-
tives, and new product platforms. Information and technology and
other initiatives included billing and back office system upgrades,
and other facilities and equipment spending.
2008 WIRELESS ADDITIONS TO PP&E
(%)
HSPA 34%
Other 16%
Network 49%
Inukshuk 1%
C A B L E
C ABLE’S BUSINESS
Cable is one of Canada’s largest providers of cable television, cable
telephony and high-speed Internet access, and is also a facilities-
based telecommunications alternative to the traditional telephone
companies. Its business consists of the following three segments:
The Cable Operations segment has 2.3 million basic cable subscrib-
ers at December 31, 2008, representing approximately 30% of basic
cable subscribers in Canada. At December 31, 2008, it provided
digital cable services to approximately 1.6 million households and
high-speed Internet service to approximately 1.6 million residential
subscribers. Through Rogers Home Phone, it offers local telephone
and long-distance services to residential customers with both
voice-over-cable and circuit-switched technologies with 1.1 million
subscriber lines at December 31, 2008.
The RBS segment offers local and long-distance telephone,
enhanced voice and data services, and IP access to Canadian busi-
nesses and governments, as well as making some of these offerings
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
37
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
available on a wholesale basis to other telecommunications provid-
ers. At December 31, 2008, there were 197,000 local line equivalents
and 34,000 broadband data circuits. Cable is increasingly focusing
its business segment sales efforts within its traditional cable tele-
vision footprint, where it is able to provision and serve customers
with voice and data telephony services provisioned over its own
infrastructure.
The Rogers Retail segment operates a retail distribution chain that
offers Rogers branded home entertainment and wireless products
and services. There were 456 stores at December 31, 2008, including
approximately 170 stores acquired in January 2007 from Wireless,
many of which provide customers with the ability to purchase any
of Rogers’ primary services (cable television, Internet, cable tele-
phony and wireless), to pay their Rogers bills, and to pick up or
return Rogers digital and Internet equipment. The segment also
offers digital video disc (“DVD”) and video game sales and rentals
through Canada’s second largest chain of video rental stores.
2008 CABLE REVENUE MIX
(%)
Core Cable 44%
Internet 18%
Home Phone 13%
Business Solutions 14%
Retail 11%
Cable’s Products and Services
Cable has highly-clustered and technologically advanced broad-
band networks in Ontario, New Brunswick and Newfoundland and
Labrador. Its Ontario cable systems, which encompass approximately
90% of its 2.3 million basic cable subscribers, are concentrated in
and around three principal clusters: (i) the Greater Toronto Area,
Canada’s largest metropolitan centre; (ii) Ottawa, the national
capital city of Canada; and (iii) the Guelph to London corridor in
southwestern Ontario. The New Brunswick and Newfoundland and
Labrador cable systems in Atlantic Canada comprise the balance of
its cable systems and subscribers.
Through its technologically advanced broadband networks, Cable
offers a diverse range of services, including analog and digital
cable, residential Internet services and voice-over-cable telephony
services.
As at December 31, 2008, more than 88% of Cable’s overall network
and 99% of its network in Ontario has been upgraded to transmit
860 MHz of bandwidth. With approximately 99% of Cable’s net-
work offering digital cable services, it has a richly featured and
highly-competitive video offering, which includes high-definition
television (“HDTV”), on-demand programming including mov-
ies, television series and events available on a per purchase basis
or in some cases on a subscription basis, personal video recorders
(“PVR”), time-shifted programming, as well as a significant line-up
of digital specialty, multicultural and sports programming.
Cable’s Internet services are available to over 97% of homes passed
by its network. Cable’s high-speed Internet has been found to have
38
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
the fastest and most reliable speeds supported by independent
third-party research comparing average download speed to the
equivalent speeds of the incumbent DSL provider. Cable offers mul-
tiple tiers of Internet services, which are differentiated principally
by bandwidth capabilities and monthly usage cap size prior to addi-
tional usage charges.
Cable’s voice-over-cable telephony services were introduced in July
2005 and have grown both in the number of subscribers and in the
size of the geographic area where the service is available. Cable
offers packages that include from one to six calling features and
competitive unlimited or pay-by-the-minute long-distance plans.
Every Rogers Home Phone customer receives free long-distance
calling to Rogers Wireless, Rogers Home Phone and Fido custom-
ers. In addition, extended local calling areas have been created in
areas such as Barrie, Ontario and Ottawa, Ontario. At December 31,
2008, Cable’s voice-over-cable telephony services were available to
approximately 95% of homes passed by its network.
Cable offers multi-product bundles at discounted rates, which allow
customers to choose from among a range of cable, Internet, voice-
over-cable telephony and Wireless products and services, subject
to, in most cases, minimum purchase and term commitments.
Cable maintains a base of services sold to businesses, government
agencies and telecom wholesalers in many markets across Canada.
These services are made up of local and long-distance services,
enhanced voice and data services, and IP application solutions.
These services have historically been primarily based on re-sold
access networks. Cable has recently revised its focus away from
marketing and selling these off-net services to concentrate more
on developing offerings that utilize its own facilities within its tra-
ditional cable television serving areas.
Cable sells and services Rogers branded products and also offers
DVD and video game sales and rentals through Rogers Retail.
Cable’s Distribution
In addition to the Rogers Retail stores, Cable markets its services
through an extensive network of third party retail locations across
its network footprint. Rogers Retail provides customers with a
single direct retail channel featuring all of the wireless and cable
products and services. In addition to its own and third party retail
locations, Cable markets its services and products through a variety
of additional channels, including call centres, outbound telemar-
keting, field agents, direct mail, television advertising, its own
direct sales force, exclusive and non-exclusive agents, as well as
through business associations. Cable also offers products and ser-
vices and customer service via our e-business website, rogers.com.
The information contained in or connected to our website is not a
part of and not incorporated into this MD&A.
Cable’s Networks
Cable’s networks in Ontario and New Brunswick, with few excep-
tions, are interconnected to regional head-ends, where analog and
digital channel line-ups are assembled for distribution to customers
and Internet traffic is aggregated and routed to and from custom-
ers, by inter-city fibre-optic rings. The fibre-optic interconnections
allow its multiple Ontario and New Brunswick cable systems to
function as a single cable network. Cable’s remaining subscribers
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
in Newfoundland and Labrador, and New Brunswick are served
by local head-ends. Cable’s two regional head-ends in Toronto,
Ontario and Moncton, New Brunswick provide the source for most
television signals used in the cable systems.
curb (“FTTC”). This architecture provides improved reliability and
reduced maintenance due to fewer active network devices being
deployed. FTTC also provides greater capacity for future narrow-
cast services.
Cable’s technology architecture is based on a three-tiered structure
of primary hubs, optical nodes and co-axial distribution. The pri-
mary hubs, located in each region that it serves, are connected by
inter-city fibre-optic systems carrying television, Internet, network
control and monitoring and administrative traffic. The fibre-optic
systems are generally constructed as rings that allow signals to
flow in and out of each primary hub, or head-end, through two
paths, providing protection from a fibre cut or other disruption.
These high-capacity fibre-optic networks deliver high performance
and reliability and generally have capacity for future growth in the
form of dark fibre and unused optical wavelengths. Approximately
99% of the homes passed by Cable’s network are fed from pri-
mary hubs, or head-ends, which on average serve 90,000 homes
each. The remaining 1% of the homes passed by the network are
in smaller and more rural systems mostly in New Brunswick and
Newfoundland and Labrador that are, on average, served by
smaller primary hubs.
Optical fibre joins the primary hub to the optical nodes in the cable
distribution plant. Final distribution to subscriber homes from opti-
cal nodes uses co-axial cable with two-way amplifiers to support
on-demand television and Internet service. Co-axial cable capac-
ity has been increased repeatedly by introducing more advanced
amplifier technologies. Cable believes co-axial cable is a cost-effec-
tive and widely deployed means of carrying two-way television and
broadband Internet services to residential subscribers.
Groups of an average of 437 homes are served from each optical
node in a cable architecture commonly referred to as fibre-to-the-
feeder (“FTTF”). The FTTF plant provides bandwidth up to 860 MHz,
which includes 37 MHz of bandwidth used for “upstream” trans-
mission from the subscribers’ premises to the primary hub. Cable
believes the upstream bandwidth is ample to support multiple
cable modem systems, cable telephony, and data traffic from inter-
active digital set-top terminals for at least the near-term future.
When necessary, additional upstream capacity can be provided by
reducing the number of homes served by each optical node, which
is referred to as node-splitting. Fibre cable has been placed to per-
mit a reduction of the average node size from 437 to 350 homes by
installing additional optical transceiver modules and optical trans-
mitters and return receivers in the head-ends and primary hubs.
Cable believes that the 860 MHz FTTF architecture provides suf-
ficient bandwidth to provide for television, data, voice and other
future services, high picture quality, advanced two-way capability
and network reliability. This architecture also allows for the intro-
duction of bandwidth optimization technologies, such as switched
digital video (“SDV”) and MPEG4, and offers the ability to continue
to expand service offerings on the existing infrastructure. SDV has
been successfully deployed in head-ends serving over 60 percent of
Ontario homes. In addition, Cable’s clustered network of cable sys-
tems served by regional head-ends facilitates its ability to rapidly
introduce new services to large areas of subscribers. In new con-
struction projects in major urban areas, Cable is now deploying a
cable network architecture commonly referred to as fibre-to-the-
Cable’s voice-over-cable telephony services are offered over an
advanced broadband IP multimedia network layer deployed across
the cable service areas. This network platform provides for a scalable
primary line quality digital voice-over-cable telephony service utiliz-
ing Packet Cable and Data Over Cable Service Interface Specification
(“DOCSIS”) standards, including network redundancy as well as
multi-hour network and customer premises backup powering.
To serve telephony customers on circuit-switched platforms, Cable
co-locates its equipment in the switch centres of the incumbent local
phone companies (“ILECs”). At December 31, 2008, Cable was active
in 179 co-locations in 63 municipalities in five of Canada’s most popu-
lous metropolitan areas in and around Vancouver, Calgary, Toronto,
Ottawa and Montréal. Many of these co-locations are connected to
its local switches by metro area fibre networks (“MANs”). Cable also
operates a North American transcontinental fibre-optic network
extending over 21,000 route kilometres providing a significant North
American geographic footprint connecting Canada’s largest markets
while also reaching key U.S. markets for the exchange of data and
voice traffic. In Canada, the network extends from Vancouver in the
west to St. John’s in the east. Cable also acquired various competitive
local exchange carrier (“CLEC”) assets of Futureway Communications
Inc. (“Futureway”) in the Greater Toronto Area during 2007. The assets
include local and regional fibre, transmission electronics and systems,
hubs, points of presence (“POPs”), ILEC co-locations and switching
infrastructure. Cable’s network extends into the U.S. from Vancouver
south to Seattle in the west, from the Manitoba-Minnesota border,
through Minneapolis, Milwaukee and Chicago in the mid-west and
from Toronto through Buffalo and Montréal through Albany to
New York City in the east. Cable has connected its North American
network with Europe through
international gateway switches in
New York City, London, England,
and a leased trans-Atlantic fibre
facility.
CABLE TOTAL
REVENUE
(In millions of dollars)
$3,201
$3,558
$3,809
Where Cable does not have its
own local facilities directly to a
business customer’s premises,
Cable provides its local services
through a hybrid carrier strategy
utilizing unbundled local loops
of the ILECs. Cable has deployed
its own scalable switching and
intelligent services infrastructure
while using connections between
its co-located equipment and cus-
tomer premises, provided largely
by other carriers.
2006
2007
2007
2008
2008
C ABLE’S STR ATEGY
Cable seeks to maximize subscribers, revenue, operating profit, and
return on invested capital by leveraging its technologically advanced
cable network to meet the information, entertainment and commu-
nications needs of its residential and small business customers, from
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
39
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
basic cable television to advanced two-way cable services, including
digital cable, pay-per-view (“PPV”), video-on-demand (“VOD”), sub-
scription video-on-demand (“SVOD”), PVR and HDTV, Internet access,
voice-over-cable telephony service, as well as the expansion of its ser-
vices into the business telecom and data networking market. The key
elements of the strategy are as follows:
• Clustering of cable systems in and around metropolitan areas;
• Offering a wide selection of products and services;
• Maintaining technologically advanced cable networks;
• Continuing to focus on increased quality and reliability of ser-
vice, and customer satisfaction;
• Tailoring services to the changing demographic of the Cable
customer base, including expansion of products directly serving
several multicultural communities;
• Continuing to improve product features, including expanding
available TV content, including HDTV and VOD selection, faster
tiers of Internet service and new telephony service offerings;
• Expanding the availability of high-quality digital primary line
voice-over-cable telephony service into most of the markets in its
cable service areas; and
• Further focusing on small business as well as other opportunities
for larger businesses connected to our network and a re-entry to
the international carrier market.
RECENT C ABLE I NDUSTRY T RENDS
Investment in Improved Cable Television Networks and
Expanded Service Offerings
In recent years, North American cable television companies have
made substantial investments in the installation of fibre-optic
cable and electronics in their respective networks and in the devel-
opment of Internet, digital cable and voice-over-cable telephony
services. These investments have enabled cable television compa-
nies to offer expanded packages of digital cable television services,
including VOD and SVOD, pay television packages, PVR, HDTV pro-
gramming, multiple increasingly fast tiers of Internet services, and
telephony services.
Increased Competition from Alternative Broadcasting
Distribution Undertakings
As fully described in the section of this MD&A entitled “Competition
in our Businesses”, Canadian cable television systems generally face
legal and illegal competition from several alternative multi-channel
broadcasting distribution systems.
Grow th of Internet Protocol-Based Services
Another development has been the launch of Voice-over-Internet
Protocol (“VoIP”) local services by non-facilities-based providers in
2005 and 2006. These companies’ VoIP services are marketed to the
subscribers of ILEC, cable and other companies’ high-speed Internet
services and the providers of VoIP services include Vonage, Primus,
Babytel and others.
In the enterprise market, there is a continuing shift to IP-based
services, in particular from asynchronous transfer mode (“ATM”)
and frame relay (two common data networking technologies) to IP
delivered through virtual private networking (“VPN”) services. This
transition results in lower costs for both users and carriers.
40
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
Grow th of Facilities-Based Competitors
Competition remains intense in the long-distance markets with
average price per minute continuing to decline year-over-year.
Facilities-based competitors in the local telephone market have
emerged in the residential and small and medium-sized business
markets. There has been limited local facilities-based competition
in the large enterprise market.
C ABLE O PER ATING AND F INANCIAL R ESULTS
For purposes of this discussion, revenue has been classified accord-
ing to the following categories:
• Cable, which includes revenue derived from:
• analog cable service, consisting of basic cable service fees plus
extended basic (or tier) service fees, and access fees for use of
channel capacity by third and related parties; and
• digital cable service revenue, consisting of digital channel ser-
vice fees, including premium and specialty service subscription
fees, PPV service fees, VOD service fees, and revenue earned
on the sale and rental of set-top terminals;
• Internet, which includes service revenues from residential
Internet access service, additional usage revenues and modem
sale and rental fees;
• Rogers Home Phone, which includes revenues from residential
local telephony service, long-distance and additional calling fea-
tures;
• RBS, which includes local and long-distance revenues, enhanced
voice and data services revenue from business customers, as well
as the sale of these offerings on a wholesale basis to other tele-
communications providers; and
• Rogers Retail, which includes commissions earned while acting as
an agent to sell other Rogers’ services, such as wireless, Internet,
digital cable and cable telephony, as well as the sale and rental
of DVDs and video games and confectionary sales.
Operating expenses are segregated into the following categories
for assessing business performance:
• Sales and marketing expenses, which include sales and reten-
tion-related advertising and customer communications as well as
other customer acquisition costs, such as sales support and com-
missions as well as costs of operating, advertising and promoting
the Rogers Retail chain;
• Operating, general and administrative expenses, which include
all other expenses incurred to operate the business on a day-to-
day basis and to service subscriber relationships, including:
• the monthly contracted payments for the acquisition of
programming paid directly to the programming suppliers, copy-
right collectives and the Canadian Programming Production
Funds;
• Internet interconnectivity and usage charges and the cost of
operating Cable’s Internet service;
• intercarrier payments for interconnect to the local access and
long-distance carriers related to cable and circuit-switched
telephony service;
• technical service expenses, which include the costs of operat-
ing and maintaining cable networks as well as certain customer
service activities, such as installations and repair;
• customer care expenses, which include the costs associated
with customer order-taking and billing inquiries;
• community television expenses, which consist of the costs to
operate a series of local community-based television stations
in Cable’s licenced systems;
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
• other general and administrative expenses; and
• expenses related to the corporate management of the Rogers
Retail stores;
• Cost of Rogers Retail sales, which is composed of store merchan-
dise and depreciation related to the acquisition of DVDs and
game rental assets.
In the cable industry in Canada, the demand for services, particularly
Internet, digital television and cable telephony services, continues
to grow and the variable costs associated with this growth, such
as commissions for subscriber activations, as well as the fixed costs
of acquiring new subscribers, are significant. As such, fluctuations
in the number of activations of new subscribers from period-to-
period result in fluctuations in sales and marketing expenses.
Summarized Cable Financial Results
Years ended December 31,
(In millions of dollars, except margin)
Operating revenue
Cable Operations (3)
RBS
Rogers Retail
Intercompany eliminations
Total operating revenue
Operating profit (loss) before the undernoted
Cable Operations (3)
RBS
Rogers Retail
Adjusted operating profit (4)
Stock option plan amendment (5)
Stock-based compensation recovery (expense) (5)
Integration and restructuring expenses (6)
Contract renegotiation fee (7)
Adjustment for CRTC Part II fees decision (8)
Operating profit (4)
Adjusted operating profit (loss) margin (4)
Cable Operations (3)
RBS
Rogers Retail
Additions to PP&E (4)
Cable Operations (3)
RBS
Rogers Retail
Total additions to PP&E
2008 (1)
2007 (2)
% Chg
$
2,878 $
526
417
(12)
2,603
571
393
(9)
3,809
3,558
1,171
59
3
1,233
–
32
(20)
–
(25)
1,008
12
(4)
1,016
(113)
(11)
(38)
(52)
–
11
(8)
6
33
7
16
n/m
n/m
21
n/m
n/m
(47)
n/m
n/m
$
1,220 $
802
52
40.7%
11.2%
0.7%
38.7 %
2.1 %
(1.0) %
$
829 $
36
21
$
886 $
710
83
21
814
17
(57)
–
9
(1) The operating results of Aurora Cable are included in Cable’s results of operations from the date of acquisition on June 12, 2008.
(2) The operating results of Futureway are included in Cable’s results of operations from the date of acquisition on June 22, 2007.
(3) Cable Operations segment includes Core Cable services, Internet services and Rogers Home Phone services.
(4) As defined. See the sections entitled “key Performance Indicators and Non-GAAP Measures” and “Supplementary Information: Non-GAAP Calculations”.
(5) See the section entitled “Stock-based Compensation”.
(6) Costs incurred relate to severances resulting from the restructuring of our employee base to improve our cost structure in light of the declining economic conditions, the integration of Call-Net, Futureway
and Aurora Cable, the restructuring of RBS, and the closure of certain Rogers Retail stores.
(7) One-time charge resulting from the renegotiation of an Internet-related services agreement.
(8) Relates to an adjustment for CRTC Part II fees related to prior periods. See the section entitled “Government Regulation and Regulatory Developments”.
OPER ATING HIGHLIGHTS FOR THE YEAR ENDED
DECEMBER 31, 20 08
• Through organic growth and acquisitions, increased cable
telephony lines by 184,000, high-speed residential Internet sub-
scribers by 117,000, digital cable households by 197,000 and basic
cable subscribers by 25,000 in the year.
• HDTV digital cable subscribers were up 37% from December 31,
2007 to December 31, 2008, to 568,000, while the number of pur-
chases of Rogers on Demand product increased by approximately
15% year-over-year.
• Independent research firm comScore Inc. found Rogers Hi-Speed
Internet to be the fastest and most reliable Internet access service
for residential customers in the Greater Toronto Area. The results,
which were based on over 120,000 network speed tests conducted
over a four month period in early 2008, showed that the Rogers
Hi-Speed Internet product delivers faster speeds across all service
tiers when compared to Cable’s primary DSL competitor.
• On June 12, 2008, we acquired 100% of the outstanding shares of
Aurora Cable. Aurora Cable passes approximately 26,000 homes
and provides cable television, Internet and telephony services
in the Town of Aurora and the community of Oak Ridges, in
Richmond Hill, Ontario.
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
41
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
• Expanded the availability of our residential telephony service to
• Introduced 11 additional HD channels during 2008, including
approximately 95% of homes passed by our cable networks.
HBO Canada.
• Invested in SDV technology to allow for expansion of our avail-
able channel lineup and HDTV choices.
• Deployed a new on-demand interface in Ontario to the major-
ity of our customers, improving the overall customer experience.
In the Atlantic Region the digital cable interactive program
guide and on-demand user interface were replaced with a more
feature-enhanced user interface.
• Increased download speeds for Internet access services, and also
implemented monthly usage allowances and monitoring tools,
while usage-based billing on a per gigabyte basis for very heavy
usage customers was phased in.
• Digital cable customers now have access to certain prime-
time content on-demand. Episodes of top primetime series are
available for viewing on-demand shortly after airing on major
networks.
Total operating revenue increased $251 million or 7%, from 2007,
and total adjusted operating profit increased to $1,233 million or by
$217 million, a 21% increase from 2007. See the following segment
discussions for a detailed discussion of operating results.
C ABLE OPER ATIONS
Summarized Financial Results
Years ended December 31,
(In millions of dollars, except margin)
Operating revenue
Core Cable
Internet
Rogers Home Phone
Total Cable Operations operating revenue
Operating expenses before the undernoted
Sales and marketing expenses
Operating, general and administrative expenses
Adjusted operating profit (1)
Stock option plan amendment (2)
Stock-based compensation recovery (expense) (2)
Integration and restructuring expenses (3)
Contract renegotiation fee (4)
Adjustment for CRTC Part II fees decision (5)
Operating profit (1)
Adjusted operating profit margin (1)
2008
2007
% Chg
$
1,669 $
695
514
1,540
608
455
2,878
2,603
248
1,459
257
1,338
1,707
1,595
1,171
–
30
(9)
–
(25)
1,008
(106)
(10)
(9)
(52)
–
8
14
13
11
(4)
9
7
16
n/m
n/m
–
n/m
n/m
$
1,167 $
831
40
40.7%
38.7%
(1) As defined. See the sections entitled “key Performance Indicators and Non-GAAP Measures” and “Supplementary Information: Non-GAAP Calculations”.
(2) See the section entitled “Stock-based Compensation”.
(3) Costs incurred relate to severances resulting from the restructuring of our employee base to improve our cost structure in light of the declining economic conditions and the integration of Call-Net,
Futureway and Aurora Cable.
(4) One-time charge resulting from the renegotiation of an Internet-related services agreement.
(5) Relates to an adjustment for CRTC Part II fees related to prior periods. See the section entitled “Government Regulation and Regulatory Developments”.
42
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Summarized Subscriber Results
Years ended December 31,
(Subscriber statistics in thousands, except ARPU)
Cable homes passed (2)
Basic Cable
Net additions (3)
Total Basic Cable subscribers (4)
Core Cable ARPU (5)
High-speed Internet
Net additions
Total Internet subscribers (residential) (4)(6)(7)(8)
Internet ARPU (5)
Digital Cable
Terminals, net additions
Total terminals in service (4)
Households, net additions
Total households (4)
Cable telephony lines
Net additions and migrations (9)
Total Cable telephony lines (4)
Cable Revenue Generating Units (“RGUs”) (10)
Net additions
Total RGUs
Circuit-switched lines
Net losses and migrations (9)
Total circuit-switched lines (7)
2008
2007 (1)
3,547
3,575
9
2,320
$ 60.47
18
2,295
$ 56.39
102
1,582
37.82
$
165
1,465
36.51
$
$
$
404
2,283
191
1,550
182
840
374
1,871
219
1,353
290
656
484
6,292
692
5,769
(119)
215
(37)
334
Chg
(28)
(9)
25
4.08
(63)
117
1.31
30
412
(28)
197
(108)
184
(208)
523
(82)
(119)
(1) Certain of the comparative figures have been reclassified to conform to the current year presentation.
(2) During 2008, a change in subscriber reporting resulted in a decrease to cable homes passed of approximately 150,000.
(3) During 2008, a reclassification of certain subscribers had the impact of increasing basic cable net additions by approximately 16,000. In addition, basic cable net subscriber additions for 2008 reflect the
impact of the conversion of a large municipal housing authority’s cable TV arrangement with Rogers from a bulk to an individual tenant pay basis, which had the impact of reducing basic cable subscribers
by approximately 5,000.
(4) Included in total subscribers at December 31, 2008 are approximately 16,000 basic cable subscribers, 11,000 high-speed Internet subscribers, 8,000 terminals in service, 6,000 digital cable households and
2,000 cable telephony subscriber lines, representing 35,000 RGUs, acquired from Aurora Cable on June 12, 2008. These subscribers are not included in net additions for the year ended December 31, 2008.
(5) As defined. See the sections entitled “key Performance Indicators and Non-GAAP Measures” and “Supplementary Information: Non-GAAP Calculations”.
(6) During 2008, a change in subscriber reporting resulted in the reclassification of approximately 4,000 high-speed Internet subscribers from RBS’ broadband data circuits to Cable Operations’ high-speed
Internet subscriber base. These subscribers are not included in net additions for the year ended December 31, 2008.
(7) Included in total subscribers at December 31, 2007 are approximately 3,000 high-speed Internet subscribers and 21,000 circuit-switched telephony subscriber lines, representing 24,000 RGUs, acquired
from Futureway. These subscribers are not included in net additions for the year ended December 31, 2007.
(8) Included in high-speed Internet subscribers are 10,000 and 14,000 ADSL subscribers at December 31, 2008 and 2007, respectively. In addition, ADSL subscriber losses were 3,000 in the year ended
December 31, 2008, while there were 8,000 subscriber additions in the year ended December 31, 2007.
(9) Includes approximately 60,000 and 42,000 migrations from circuit-switched to cable telephony for the years ended December 31, 2008 and December 31, 2007, respectively.
(10) Cable RGUs are comprised of basic cable subscribers, digital cable households, residential high-speed Internet subscribers and residential cable telephony lines.
An overall economic slowdown in Ontario has resulted in lower net
additions of most of our cable products compared to the previous
year, and has most impacted sales of our Internet and Home Phone
products.
Core Cable Revenue
Within Cable Operations, the increase in Core Cable revenue for
2008, compared to 2007, reflects further penetration of our digi-
tal cable product offerings, including increased HDTV adoption,
combined with the year-over-year increase in the number of analog
cable customers. Equipment sales revenue increased by $11 million
compared to 2007, which is primarily the result of the HD digital box
sale (versus rental) campaign that ran during the fourth quarter of
2008. Additionally, the impact of certain price changes introduced
in March 2008 and in March 2007 to both our digital and basic cable
services contributed to the growth in revenue.
DIGITAL CABLE HOUSEHOLDS AND
DIGITAL PENETRATION OF BASIC
(In thousands)
1,134
1,353
The digital cable subscriber base
grew by 15% from December 31,
2007 to December 31, 2008. Digital
penetration now represents
approximately 67% of basic cable
households. Increased demand
for HDTV and PVR digital set-
top box equipment and digital
content generally, combined
with multi-product marketing
campaigns, which package cable
television, high-speed Internet
and Rogers Home Phone services,
contributed to the growth in the
digital subscriber base of 197,000
in 2008. HDTV subscribers at Cable
were up 37% from December 31,
2007 to December 31, 2008, to
568,000, helped in part by an HD
digital box purchase promotion during the fourth quarter.
2007
2007
2006
59%
50%
1,550
67%
2008
2008
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
43
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CABLE RGU BREAKDOWN
(%)
Basic 37%
Digital 25%
Telephony 13%
High-speed Internet 25%
Internet (Residential) Revenue
The year-over-year increases in Internet revenues for 2008 primarily
reflect the 8% increase in the Internet subscriber base combined
with certain Internet services price increases made during the previ-
ous twelve months and incremental revenue from additional usage
charges. The average monthly revenue per Internet subscriber has
increased in 2008 compared to 2007 due to various pricing adjust-
ments over the prior year.
With the high-speed Internet base now at approximately 1.6 million,
Internet penetration is approximately 45% of the homes passed by
our cable networks.
In addition to the economic impacts on sales as discussed above,
the lower high-speed Internet net additions also reflect the grow-
ing penetration of broadband in Canada.
HIGH DEFINITION
HOUSEHOLDS
(In thousands)
CABLE INTERNET SUBSCRIBERS
AND INTERNET PENETRATION
OF HOMES PASSED (In thousands)
223
361
568
1,297
1,465
1,582
Rogers Home Phone Revenue
The revenue growth of Rogers Home Phone for 2008 reflects the
year-over-year growth in the cable telephony customer base, offset
by the ongoing decline of the circuit-switched and long-distance
only customer bases. The lower net additions of cable telephony
lines versus the previous year reflects the impact of a slowing
Ontario economy combined with increased win-back activities by
incumbent telecom providers as Rogers’ market share increases.
The base of cable telephony lines grew 28% from December 31, 2007
to December 31, 2008. At December 31, 2008, cable telephony lines
represented 36% of basic cable subscribers and 24% of the homes
passed by our cable networks.
Cable continues to focus principally on growing its on-net cable
telephony line base, and as part of this on-net focus, began to
significantly de-emphasize circuit-switched sales earlier in 2008
and intensified its efforts to convert circuit-switched lines that are
within the cable territory onto its cable telephony platform. Of
the 182,000 net line additions to cable telephony during the year,
approximately 60,000 were migrations of lines from our circuit-
switched to our cable telephony platform.
The greater number of circuit-switched net line losses during
2008 compared to 2007 reflect Cable’s migrations of lines within
the cable areas from the circuit-switched platform onto the cable
telephony platform, combined with a significant de-emphasis
since early 2008 on the sales and marketing of the lower margin
circuit-switched telephony product in markets outside of the cable
footprint. Because of the strategic decision to de-emphasize sales
of the circuit-switched telephony product outside of the cable
footprint, Cable expects that circuit-switched net line losses will
continue as that base of subscribers shrinks over time.
41%
37%
45%
HOME PHONE CABLE TELEPHONY
SUBSCRIBERS AND PENETRATION
OF HOMES PASSED (In thousands)
CABLE RGUs
(In thousands)
366
656
840
2,277
1,134
1,297
366
2,295
1,353
1,465
656
2,320
1,550
1,582
840
2006
2007
2008
2006
2007
2007
2008
2008
24%
18%
11%
2006
2007
2008
2006
2007
2008
Basic cable
Digital households
Internet
Residential cable telephony
44
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cable Operations Operating Expenses
The increase in Cable’s operating expenses for 2008 compared
to 2007 was primarily driven by the increases in the digital cable,
Internet and Rogers Home Phone subscriber bases, resulting in
higher costs associated with programming content, customer care,
network operations, information technology and credit and collec-
tions. Additionally, equipment costs increased over 2007, which is
primarily the result of an HD digital box sale (versus rental) cam-
paign. Partially offsetting these increases was a reduction in certain
costs associated with Cable’s Internet product resulting from a
renegotiated agreement with Yahoo! which became effective
January 1, 2008, a year-over-year reduction in selling expenditures
resulting from lower volumes of RGU net additions than in the cor-
responding periods of the prior year and scale efficiencies across
various functions.
Cable Operations Adjusted Operating Profit
The year-over-year growth in adjusted operating profit was pri-
marily the result of the revenue growth described above, partially
offset by the changes in Cable’s operating expenses. As a result,
Cable Operations adjusted operating profit margins increased to
40.7% for 2008, compared to 38.7% in 2007.
Cable Operations’ base of cir-
cuit-switched local telephony
customers as discussed above,
which was acquired in July 2005
through the acquisition of Call-
Net, is generally less capital
intensive than its on-net cable
telephony business but also
generates lower margins. As a
result, the inclusion of the cir-
cuit-switched local telephony
business, which includes approx-
imately 215,000 customers which
have not been migrated to our
cable network telephony plat-
form with Cable Operations’
telephony business, has a dilu-
tive impact on operating profit
margins.
CABLE OPERATIONS ADJUSTED
OPERATING PROFIT AND
MARGIN (In millions of dollars)
$854
$1,008
$1,171
40.7%
38.7%
37.1%
2006
2007
2007
2008
2008
ROGERS B USINESS SOLUTIONS
Summarized Financial Results
Years ended December 31,
(In millions of dollars, except margin)
RBS operating revenue
Operating expenses before the undernoted
Sales and marketing expenses
Operating, general and administrative expenses
Adjusted operating profit (1)
Stock option plan amendment (2)
Stock-based compensation recovery (2)
Integration and restructuring expenses (3)
Operating profit (loss) (1)
Adjusted operating profit margin (1)
2008
2007
% Chg
$
526
$
571
(8)
26
441
467
59
–
1
(6)
75
484
559
12
(2)
–
(29)
(65)
(9)
(16)
n/m
n/m
n/m
(79)
$
54
$
(19)
n/m
11.2%
2.1%
(1) As defined. See the sections entitled “key Performance Indicators and Non-GAAP Measures” and “Supplementary Information: Non-GAAP Calculations”.
(2) See the section entitled “Stock-based Compensation”.
(3) Costs incurred relate to severances resulting from the restructuring of our employee base to improve our cost structure in light of the declining economic conditions, the integration of Call-Net and the
restructuring of RBS.
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
45
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Summarized Subscriber Results
Years ended December 31,
(Subscriber statistics in thousands)
Local line equivalents (1)
Total local line equivalents (2)
Broadband data circuits (3)
Total broadband data circuits (2) (4)
2008
2007
% Chg
197
237
(40)
34
35
(1)
(1) Local line equivalents include individual voice lines plus Primary Rate Interfaces (“PRIs”) at a factor of 23 voice lines each.
(2) Included in total subscribers at December 31, 2007 are approximately 14,000 local line equivalents and 1,000 broadband data circuits acquired from Futureway. These subscribers are not included in net
additions for 2007.
(3) Broadband data circuits are those customer locations accessed by data networking technologies including DOCSIS, DSL, E10/100/1000, OC 3/12 and DS 1/3.
(4) During the first quarter of 2008, a change in subscriber reporting resulted in the reclassification of approximately 4,000 high-speed Internet subscribers from RBS’ broadband data circuits to Cable
Operations’ high-speed Internet subscriber base. These subscribers are not included in net additions for 2008.
RBS Revenue
The decrease in RBS revenues reflects a decline in long-distance
and legacy data service businesses, with a shift in focus to increas-
ing the strength of profitable relationships and leveraging revenue
opportunities over Cable’s existing network. RBS continues to focus
on retaining its existing medium-enterprise and carrier customer
base, but in late 2007 it suspended most sales and marketing initia-
tives related to acquiring new medium and large business customers
other than purely on-net opportunities within Cable’s footprint. RBS
continues to focus on managing the profitability of its existing cus-
tomer base and evaluate profitable opportunities within the medium
and large enterprise and carrier segments, while Cable Operations
focuses on continuing to grow Rogers’ penetration of telephony
and Internet services into the small business and home office mar-
kets within Cable’s territory. For 2008, RBS long-distance revenue
declined $22 million and data revenue declined $18 million.
RBS Operating Expenses
Carrier charges of $300 million, included in operating, general and
administrative expenses, decreased by $14 million in 2008, com-
pared to 2007, due to the decrease in revenue and focus on on-net
services. Carrier charges represented approximately 57% of reve-
nue in 2008, essentially unchanged from 2007 where carrier charges
represented 55% of revenue.
The decrease in other operating, general and administrative
expenses, excluding carrier charges, is primarily related to lower
technical service and information technology costs compared to
2007. The $49 million reduction in sales and marketing expenses for
2008, compared to the prior year, reflects streamlining initiatives
associated with the refocusing of RBS’ business as discussed above.
RBS Adjusted Operating Profit
The changes described above resulted in RBS adjusted operating
profit of $59 million for 2008 compared to an adjusted operating
profit of $12 million in 2007.
Integration and Restructuring Expenses
During 2008, RBS incurred costs of approximately $2 million related
to severances resulting from the targeted restructuring of our
employee base to improve our cost structure in light of the declin-
ing economic conditions and approximately $4 million in additional
costs related to the Call-Net integration and RBS restructuring.
During 2007, most RBS new customer acquisition efforts in the
enterprise and larger business segments and outside of Cable’s
footprint were suspended, resulting in certain staff reductions and
the incurrence of approximately $20 million in severance costs. In
addition, consulting and contract termination costs of $4 million
related to the restructuring and $5 million of integration expenses
related to the acquisition of Call-Net were incurred.
46
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ROGERS R ETAIL
Summarized Financial Results
Years ended December 31,
(In millions of dollars)
Rogers Retail operating revenue
Operating expenses
Adjusted operating profit (loss) (1)
Stock option plan amendment (2)
Stock-based compensation recovery (expense) (2)
Integration and restructuring expenses (3)
Operating loss (1)
Adjusted operating profit (loss) margin (1)
2008
2007
% Chg
$
417
$
393
414
397
3
–
1
(5)
(4)
(5)
(1)
–
6
4
n/m
n/m
n/m
n/m
$
(1) $
(10)
(90)
0.7%
(1.0%)
(1) As defined. See the sections entitled “key Performance Indicators and Non-GAAP Measures” and “Supplementary Information: Non-GAAP Calculations”.
(2) See the section entitled “Stock-based Compensation”.
(3) Costs incurred relate to severances resulting from the restructuring of our employee base to improve our cost structure in light of the declining economic conditions and the closure of certain Rogers
Retail stores.
Rogers Retail Revenue
The increases in Rogers Retail revenue in 2008, compared to 2007,
were the result of increased sales of wireless products and services,
partially offset by the continued decline in video rentals.
• Scalable infrastructure, which includes non-CPE costs to meet
business growth and to provide service enhancements, including
many of the costs to-date of the cable telephony initiative;
• Line extensions, which includes network costs to enter new ser-
Rogers Retail Adjusted Operating Profit (Loss)
Adjusted operating profit at Rogers Retail for 2008, compared to
the prior year, reflects the trends noted above.
• Upgrades and rebuild, which includes the costs to modify or
replace existing co-axial cable, fibre-optic equipment and net-
work electronics; and
vice areas;
C ABLE ADDITIONS TO PP&E
The Cable Operations segment categorizes its PP&E expenditures
according to a standardized set of reporting categories that were
developed and agreed to by the U.S. cable television industry and
which facilitate comparisons of additions to PP&E between dif-
ferent cable companies. Under these industry definitions, Cable
Operations additions to PP&E are classified into the following five
categories:
• Customer premise equipment (“CPE”), which includes the equip-
ment for digital set-top terminals, Internet modems and associated
installation costs;
Summarized Cable PP&E Additions
Years ended December 31,
(In millions of dollars)
Additions to PP&E
Customer premise equipment
Scalable infrastructure
Line extensions
Upgrades and rebuild
Support capital
Total Cable Operations
RBS
Rogers Retail
• Support capital, which includes the costs associated with the pur-
chase, replacement or enhancement of non-network assets.
2008 CABLE ADDITIONS TO PP&E
(%)
Cable Operations 94%
Business Solutions 4%
Retail 2%
2008
2007
% Chg
$
284 $
279
48
35
183
829
36
21
$
886 $
304
167
57
43
139
710
83
21
814
(7)
67
(16)
(19)
32
17
(57)
–
9
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
47
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The increase in Cable Operations PP&E additions for 2008, com-
pared to 2007, is primarily attributable to a larger subscriber base,
increased demand for high-speed Internet access and the deploy-
ment of new technologies. This resulted in increased spending on
scalable infrastructure related to, amongst other things, network
capacity and investment in switched-digital technology, as well
as increased support capital. The year-over-year increase in sup-
port capital reflects higher investments in IT initiatives. Spending
on CPE decreased in 2008, compared to 2007, resulting from lower
additions of RGUs compared to 2007.
The reduction in RBS PP&E additions for 2008, compared to 2007,
reflects the refocusing of RBS’ business as discussed above.
Rogers Retail PP&E additions are attributable to improvements
made to certain retail locations.
M E D I A
MEDIA’S BUSINESS
Media operates our radio and television broadcasting businesses,
our consumer and trade publishing operations, our televised home
shopping service and Rogers Sports Entertainment. In addition to
Media’s more traditional broadcast and print media platforms, it
also delivers content and conducts e-commerce over the Internet.
Media’s broadcasting group (“Broadcasting”) comprises 52 radio
stations across Canada; multicultural OMNI television stations;
the five station Citytv television network; specialty sports televi-
sion services including regional sports service Rogers Sportsnet
and Setanta Sports Canada; specialty services including OLN, The
Biography Channel Canada and G4TechTV Canada; and Canada’s
only nationally televised shopping service (“The Shopping
Channel”). Media also holds 50% ownership in Dome Productions,
a mobile production and distribution joint venture that is a leader
in HDTV production in Canada.
In addition to its organic growth, Media expanded its broadcasting
business in 2008 through the following initiatives: the acquisition
of the remaining two-thirds of the shares of OLN that it did not
already own, the acquisition of Vancouver multicultural televi-
sion station channel m, the pending purchase of CFDR-AM Halifax
(which has received CRTC approval to convert to FM) and the launch
of two OMNI stations in Alberta.
Media’s publishing group (“Publishing”) publishes more than 70
consumer magazines and trade and professional publications and
directories in Canada.
2008 MEDIA REVENUE MIX
(%)
Radio 18%
Television 30%
The Shopping Channel 18%
Publishing 20%
Sports Entertainment 14%
48
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
Media’s sports entertainment group (“Sports Entertainment”)
owns the Blue Jays and Rogers Centre.
MEDIA’S STR ATEGY
Media seeks to maximize revenues, operating profit and return on
invested capital across each of its businesses. Media’s strategies to
achieve this objective include:
• Continuing to leverage its strong media brand names and con-
tent over its multiple media platforms and in association with
the “Rogers” brand;
• Focusing on specialized content and audience development
through its broadcast, publication and sports properties, as well
as its growing portfolio of specialty channel investments;
• Investing in technology and content to support audience migra-
tion to the web, wireless and other mobile platforms; and
• Enhancing the Sports Entertainment fan experience by adding
talented players to improve the Blue Jays win-loss record and by
investing in upgrades to the Rogers Centre.
RECENT M EDIA I NDUSTRY T RENDS
Increased Fragmentation of Radio and T V Markets
In recent years, Canadian radio and television broadcasters have
had to operate in increasingly fragmented markets. Canadian con-
sumers have a growing number of radio and television services
available to them, providing them with an increasing number of
different programming formats. In the radio industry, since the
introduction of its Commercial Radio Policy in 1998, the CRTC has
licenced numerous new radio stations through competitive pro-
cesses in most markets across Canada. In that time, the CRTC has
also licenced a large number of additional new FM stations through
AM to FM station conversions. In 2005, the CRTC licenced two satel-
lite radio providers, both of which are affiliated with U.S. satellite
operators and both of which began offering service in Canada. In
the television industry since 2000, the CRTC has licenced a small
number of new, over-the-air stations and a significant number of
new digital television services. The new services, additional licences
and the new formats combine to fragment the market for existing
radio and television operators.
Consolidation of Industry Competitors
Ownership of Canadian radio and TV stations has consolidated
through the acquisitions by CTVglobemedia of CHUM Limited,
by Canwest Global Communications Corp. of Alliance Atlantis
Communications Inc., and by Astral Media Inc. of Standard Radio
Inc. This results in the Canadian industry being left with fewer
owners but larger competitors in the media marketplace.
MEDIA O PER ATING AND F INANCIAL R ESULTS
Media’s revenues primarily consist of:
• Advertising revenues;
• Circulation revenues;
• Subscription revenues;
• Retail product sales; and
• Sales of tickets, receipts of league revenue sharing and conces-
sion sales associated with Rogers Sports Entertainment.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Media’s operating expenses consist of:
• Cost of sales, which is primarily comprised of the cost of retail
products sold by The Shopping Channel;
• Sales and marketing expenses; and
• Operating, general and administrative expenses, which include
programming costs, production expenses, circulation expenses,
player salaries and other back-office support functions.
Summarized Media Financial Results
The operating results of channel m and OLN, which were acquired
in 2008, are included in Media’s results of operations from the dates
of acquisition on April 30, 2008 and July 31, 2008, respectively. The
operating results of Citytv are included in Media’s results of opera-
tions from the date of acquisition on October 31, 2007.
Years ended December 31,
(In millions of dollars, except margin)
Operating revenue
Operating expenses before the undernoted
Adjusted operating profit (1)
Stock option plan amendment (2)
Stock-based compensation recovery (expense) (2)
Integration and restructuring expenses (4)
Adjustment for CRTC Part II fees decision (3)
Operating profit (1)
Adjusted operating profit margin (1)
Additions to property, plant and equipment (1)
2008
2007
% Chg
$
1,496
$
1,317
1,354
1,141
142
–
17
(11)
(6)
176
(84)
(10)
–
–
$
142
$
82
9.5%
81
13.4%
77
$
$
14
19
(19)
n/m
n/m
n/m
n/m
73
5
(1) As defined. See the section entitled “key Performance Indicators and Non-GAAP Measures”.
(2) See the section entitled “Stock-based Compensation”.
(3) Relates to an adjustment for CRTC Part II fees related to prior periods. See the section entitled “Government Regulation and Regulatory Developments”.
(4) Costs incurred relate to severances resulting from the restructuring of our employee base to improve our cost structure in light of the declining economic conditions.
Media Operating Revenue
The increase in Media revenue in 2008, compared to 2007, pri-
marily reflects the acquisition of Citytv. This acquisition closed on
October 31, 2007 and contributed $152 million and $28 million to
revenue in 2008 and 2007, respectively. Excluding the impact of the
Citytv acquisition, Media’s revenue for 2008 would have increased
4% versus the prior year. Also contributing to revenue growth at
Media was the Buffalo Bills NFL Toronto series and organic growth
at Sportsnet. Radio’s revenue was relatively unchanged from prior
year, while there were modest revenue declines at Publishing
driven by advertising softness and The Shopping Channel given the
challenging retail environment.
Media Operating Expenses
The increase in Media operating expenses for 2008, compared to
2007, primarily reflects the $153 million of Citytv operating costs
that exceeded the Citytv operating costs of $31 million in 2007. The
MEDIA
REVENUE
(In millions of dollars)
MEDIA ADJUSTED
OPERATING PROFIT
(In millions of dollars)
$1,210
$1,317
$1,496
$156
$176
$142
acquisition of Citytv closed on October 31, 2007, and as a result only
two months of operating costs were included in 2007 related to this
acquisition. In addition in 2008, Media incurred a $9 million charge
for terminating a concession agreement at Rogers Centre, bought
out certain player and coaching contracts, increased programming
costs at Sportsnet, and incurred expenses related to the above
noted NFL series held at Rogers Centre. These increases were par-
tially offset by cost savings across various functions.
Media Adjusted Operating Profit
The decrease in Media’s adjusted operating profit for 2008, com-
pared to 2007, primarily reflects revenue and expense changes
discussed above and overall is reflective of the challenging eco-
nomic conditions and the resultant declines in advertising and
retail sales activity.
The challenging economic conditions have resulted in a weakening
of industry expectations in the conventional television business. As
a result of the challenging conditions and declines in advertising
revenues, we recorded a non-cash impairment charge of $294 mil-
lion. Refer to the section entitled “Impairment Losses on Goodwill,
Intangible Assets and Other Long-Term Assets” for more details on
the impairment charges recognized.
Media Additions to PP&E
The majority of Media’s PP&E additions in 2008 reflect the con-
struction of a new television production facility for the combined
Ontario operations of Citytv and OMNI, and are relatively the same
as the year ended December 31, 2007.
2006
2007
2007
2008
2008
2006
2007
2007
2008
2008
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
49
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Recent Media Developments
Media announced that the CRTC had approved its application for
a 24-hour news television channel to serve the City of Toronto and
the Greater Toronto Area. The channel will reflect Citytv’s unique
brand of news delivery, will be complemented by content from
Rogers’ ethnically diverse OMNI stations and will also feature news
items contributed from other Rogers Media properties including
The Fan 590, 680News, Sportsnet, Publishing and the Blue Jays.
OMNI was honoured by the Canadian Association of Broadcasters
(“CAB”) with Gold Ribbon Awards in two categories, including
Diversity in News and Information Programming, and in Magazine
Programming. These awards reaffirm OMNI’s excellence in deliv-
ering independent and third language programming to Canada’s
multilingual and multicultural communities.
3. CONSOLIDATED LIQUIDITY AND FINANCING
LIQUIDIT Y AND C APITAL RESOURCES
Operations
For 2008, cash generated from operations before changes in non-
cash operating items, which is calculated by removing the effect
of all non-cash items from net income, increased to $3,522 million
from $3,135 million in 2007. The $387 million increase is primarily the
result of a $357 million increase in adjusted operating profit.
Taking into account the changes in non-cash working capital items
for 2008, cash generated from operations was $3,307 million, com-
pared to $2,825 million in 2007. The cash generated from operations
of $3,307 million, together with the following items, resulted in
total net funds of approximately $5,105 million generated or raised
in 2008:
• receipt of $1,794 million aggregate gross proceeds from the issu-
ance of US$1.75 billion of public debt;
• receipt of $3 million from the issuance of Class B Non-Voting
shares under the exercise of employee stock options;
• receipt of $1 million in net proceeds from the settlement at
maturity of certain Cross-Currency Swaps and related forward
contracts.
Net funds used during 2008 totalled approximately $5,063 million,
the details of which include the following:
• additions to PP&E of $1,981 million, net of $40 million of related
changes in non-cash working capital;
• payment of the spectrum auction purchase price and associated
costs aggregating $1,008 million;
• net repayments under our bank credit facility aggregating
$655 million;
• the payment of quarterly dividends aggregating $559 million on
our Class A Voting and Class B Non-Voting shares;
• the payment of $375 million on the termination and re-
couponing of three existing Cross-Currency Swaps aggregating
US$575 million notional principal amount;
• the purchase for cancellation of 4,077,400 Class B Non-Voting
shares for an aggregate purchase price of $136.7 million;
50
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
• additions to program rights and CRTC commitments aggregating
$150 million; and
• acquisitions and other net investments aggregating $198 million,
including the acquisition of Aurora Cable, the two-thirds of OLN
not previously owned, channel m and CIKZ-FM Kitchener.
Taking into account the cash deficiency of $61 million at the begin-
ning of the year and the cash sources and uses described above, the
cash deficiency at December 31, 2008 was $19 million.
2008 USE OF CASH
(In millions of dollars)
Additions to PP&E: $1,981
$5,063
Spectrum: $1,008
Payments under bank credit facility: $655
Dividends: $559
Re-couponing of cross-currency swaps: $375
Repurchase of shares under NCIB: $137
Additions to program rights & CRTC commitments: $150
Acquisitions and other net investments: $198
2008
Financing
Our long-term debt instruments are described in Note 14 and Note
15 to the 2008 Audited Consolidated Financial Statements. During
2008, the following financing activities took place.
On August 6, 2008 RCI issued US$1.75 billion aggregate principal
amount of public debt securities, comprised of US$1.4 billion of
6.80% Senior Notes due 2018 (the “2018 Notes”) and US$350 mil-
lion of 7.50% Senior Notes due 2038 (the “2038 Notes”). The 2018
Notes were issued at a discount of 99.854% to yield 6.82% and the
2038 Notes were priced at a discount of 99.653% to yield 7.529%.
RCI received aggregate net proceeds of US$1,735 million (Cdn$1,778
million) from the issuance of the 2018 Notes and the 2038 Notes
after deducting the respective issue discounts and underwriting
commissions. The 2018 Notes and the 2038 Notes are unsecured and
are guaranteed on an unsecured basis by each of Rogers Wireless
Partnership and Rogers Cable Communications Inc. and rank pari
passu with all of RCI’s other senior unsecured and unsubordinated
notes and debentures and bank credit facility.
Effective August 6, 2008, RCI entered into an aggregate US$1.75
billion notional principal amount of Cross-Currency Swaps. An
aggregate US$1.4 billion notional principal amount of these Cross-
Currency Swaps hedge the principal and interest obligations for the
2018 Notes through to maturity in 2018 while the remaining US$350
million aggregate notional principal amount of Cross-Currency
Swaps hedge the principal and interest on the 2038 Notes for ten
years to August 2018. These Cross-Currency Swaps have the effect of:
(a) converting the US$1.4 billion aggregate principal amount of 2018
Notes from a fixed coupon rate of 6.80% into Cdn$1,435 million at
a weighted average fixed interest rate of 6.80%; and (b) converting
ADDITIONS TO
CONSOLIDATED PP&E
(In millions of dollars)
$1,712
$1,796
$2,021
2006
2007
2008
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
the US$350 million aggregate principal amount of 2038 Notes from a
fixed coupon rate of 7.50% into Cdn$359 million at a weighted aver-
age fixed interest rate of 7.53%. The Cross-Currency Swaps hedging
the 2018 Notes have been designated as hedges against the desig-
nated U.S. dollar-denominated debt for accounting purposes, while
the Cross-Currency Swaps hedging the 2038 Notes have not been
designated as hedges for accounting purposes.
Also effective on August 6, 2008, RCI re-couponed three of the exist-
ing Cross-Currency Swaps by terminating the original Cross-Currency
Swaps aggregating US$575 million notional principal amount and,
simultaneously, entering into three new Cross-Currency Swaps
aggregating US$575 million notional principal amount at then cur-
rent market rates. In each case, only the fixed foreign exchange rate
and the Canadian dollar fixed interest rate were changed and all
other terms for the new Cross-Currency Swaps are identical to the
respective terminated Cross-Currency Swaps they are replacing. The
termination of the three original Cross-Currency Swaps resulted in
RCI paying US$360 million (Cdn$375 million) for the aggregate out-
of-the-money fair value for the terminated Cross-Currency Swaps
on the date of termination, thereby reducing by an equal amount,
the fair value of the derivative instruments liability on that date.
The three new Cross-Currency Swaps have the effect of converting
US$575 million aggregate notional principal amount of U.S. dol-
lar-denominated debt from a weighted average U.S. dollar fixed
interest rate of 7.20% into Cdn$589 million ($1.025 exchange rate)
at a weighted average Canadian dollar fixed interest rate of 6.88%.
In comparison, the original Cross-Currency Swaps had the effect of
converting US$575 million aggregate notional principal amount of
U.S. dollar-denominated debt from a weighted average U.S. dollar
fixed interest rate of 7.20% into Cdn$815 million ($1.4177 exchange
rate) at a weighted average Canadian dollar fixed interest rate of
7.89%. Each of the three new Cross-Currency Swaps has been desig-
nated as a hedge against the designated U.S. dollar-denominated
debt for accounting purposes.
On December 15, 2008, two of our Cross-Currency Swaps matured
on their scheduled maturity date and, as a result, we received
US$400 million and paid $475 million aggregate notional principal
amounts on the settlement at maturity. Also on December 15, 2008,
we settled a forward foreign exchange contract to sell an aggre-
gate US$400 million in exchange for $476 million. As a result of the
maturity of these Cross-Currency
Swaps, our US$400 million 8.00%
Senior Subordinated Notes due
2012 are no longer hedged.
RATIO OF DEBT TO
ADJUSTED OPERATING PROFIT*
2.7x
2.1x
2.1x
In addition, during 2008, an
aggregate $655 million net
repayment was made under
our bank credit facility. As of
December 31, 2008, we had an
aggregate $585 million of bank
debt drawn under our $2.4 bil-
lion bank credit facility that
matures in July 2013, leaving
approximately $1.8 billion avail-
able to be drawn. This liquidity
position is also enhanced by the
fact that our earliest scheduled
debt maturity is in May 2011.
2006
2007
2007
2008
2008
* Includes debt and estimated risk-free fair value of
Cross-Currency Swaps.
$2,449
$2,825
$3,307
CONSOLIDATED CASH FLOW
FROM OPERATIONS
(In millions of dollars)
Shelf Prospectuses
In order to maintain financial
flexibility, in November 2007
RCI filed shelf prospec tuses
with securities regulators to
qualify debt securities of RCI
for sale in Canada and/or in the
United States. In August 2008,
US$1.75 billion aggregate prin-
cipal amount of debt securities
was issued in the United States
pursuant to the U.S. dollar shelf
prospectus. In October 2008, an
amendment was filed to permit
additional securities to be issued
in the United States pursuant to
the U.S. dollar shelf prospectus
so that the limit available for
securities to be issued in Canada
and the United States pursuant to the shelf prospectuses was essen-
tially restored to the range of the original shelf prospectus filings.
The notice set forth in this paragraph does not constitute an offer
of any securities for sale.
2007
2007
2006
2008
2008
Normal Course Issuer Bid
In January 2008, RCI filed a normal course issuer bid (“NCIB”) which
authorizes us to repurchase up to the lesser of 15,000,000 of our
Class B Non-Voting shares and that number of Class B Non-Voting
shares that can be purchased under the NCIB for an aggregate pur-
chase price of $300 million for a period of one year. On May 21, 2008,
RCI repurchased for cancellation 1,000,000 of its outstanding Class
B Non-Voting shares pursuant to a private agreement between RCI
and an arm’s length third party seller for an aggregate purchase
price of $39.9 million and, on August 1, 2008, RCI repurchased for
cancellation 3,000,000 of its outstanding Class B Non-Voting shares
pursuant to a private agreement between RCI and an arm’s-length
third party seller for an aggregate purchase price of $93.9 million.
Each of these purchases was made under an issuer bid exemption
order issued by the Ontario Securities Commission and will be
included in calculating the number of Class B Non-Voting shares
that RCI may purchase pursuant to the NCIB. In addition, in August
and September 2008, RCI purchased an aggregate 77,400 of its
outstanding Class B Non-Voting shares directly under the NCIB for
an aggregate purchase price of $2.9 million. The NCIB expired on
January 13, 2009. On February 18, 2009, RCI announced that it had
filed a notice of intention to renew its prior NCIB for a further one-
year period commencing February 20, 2009 and ending February
19, 2010. The number of Class B Non-Voting shares to be purchased
under the renewed NCIB, if any, and the timing of such purchases
will be determined by RCI considering market conditions, stock
prices, its cash position, and other factors.
Wireless Spectrum Auction Letters of Credit and Payment for
Auctioned Spectrum
In order to participate in the auction of wireless spectrum licences
which commenced May 27, 2008, we arranged for the issuance of
standby letters of credit aggregating $534 million pursuant to the terms
and conditions of the auction. These letters of credit were cancelled on
September 3, 2008 upon payment in full for the spectrum licences in the
recent auction. See the section entitled “Spectrum Auction Conclusion”
in the Wireless segment review for further discussion.
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
51
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Additional Revolving Credit Facility
In order to ensure that we had sufficient liquidity after taking into
account the payment for the wireless spectrum auction, in July
2008, RCI entered into a credit agreement with Canadian finan-
cial institutions for an unsecured revolving credit facility of up to
$500 million available until maturity 364 days following the closing
date. No funds were drawn under this credit facility and RCI terminated
the credit facility in August 2008 subsequent to the closing of our
US$1.75 billion public debt issue.
Covenant Compliance
We are currently in compliance with all of the covenants under our
debt instruments, and we expect to remain in compliance with all
of these covenants during 2009. At December 31, 2008, there are
no financial leverage covenants in effect other than those pursu-
ant to our bank credit facility (see Note 14(c)(i) to the 2008 Audited
Consolidated Financial Statements). Based on our most restrictive
leverage covenants, we could have incurred $14.7 billion of addi-
tional long-term debt at December 31, 2008, including the $1.8 billion
undrawn portion of our existing $2.4 billion bank credit facility.
20 09 Cash Requirements
On a consolidated basis, we anticipate that we will generate a net
cash surplus in 2009 from cash generated from operations. We
expect that we will have sufficient capital resources to satisfy our
cash funding requirements in 2009, including the funding of divi-
dends on our Class A Voting and Class B Non-Voting shares, taking
into account cash from operations and the amount available under
our $2.4 billion bank credit facility. At December 31, 2008, there
were no restrictions on the flow of funds between subsidiary com-
panies nor between RCI and any of its subsidiaries.
In the event that we require additional funding, we believe that any
such funding requirements may be satisfied by issuing additional
debt financing, which may include the restructuring of our existing
bank credit facility or issuing public or private debt or issuing equity,
all depending on market conditions. In addition, we may refinance a
portion of existing debt subject to market conditions and other fac-
tors. There is no assurance that this will or can be done.
Required Principal Repayments
At December 31, 2008, the required repayments on all long-term
debt in the next five years totals $3,744 million, comprised of
$1 million of capital leases due in 2009, $1,235 million principal repay-
ments due in 2011, $1,494 million principal repayments due in 2012
and $1,014 million due in 2013. The required principal repayments
due in 2011 consist of $600 million (US$490 million) 9.625% Senior
Notes and $460 million 7.625% Senior Notes and $175 million 7.25%
Senior Notes. The required principal repayments due in 2012 consist of
$575 million (US$470 million) 7.25% Senior Notes, $490 million
(US$400 million) 8.00% Subordinated Notes and $429 million
(US$350 million) 7.875% Senior Notes. The required repayment due
in 2013 is the $429 million (US$350 million) 6.25% Senior Notes, as
well as the maturity of the bank credit facility.
Credit Ratings Upgrades
In June 2008, Fitch Ratings upgraded each of the following: the
issuer default rating for RCI to BBB (from BBB-); the rating for RCI’s
senior unsecured debt to BBB (from BBB-); and the rating for RCI’s
senior subordinated debt to BBB- (from BB+). All of these ratings
have a stable outlook (from positive prior to this upgrade). In July
52
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
2008, Fitch assigned its BBB rating to each of the 2018 Notes and the
2038 Notes.
In June 2008, Moody’s Investors Service revised RCI’s ratings out-
look to positive (from stable) while affirming its Baa3 rating on
RCI’s senior unsecured debt and Ba1 on RCI’s senior subordinated
debt. In July 2008, Moody’s assigned its Baa3 rating to each of the
2018 Notes and the 2038 Notes and affirmed each of the ratings and
positive outlook noted above.
In June 2008, Standard & Poor’s Ratings Services revised RCI’s ratings
outlook to positive (from stable) while affirming its BBB- corporate
credit rating, BBB- rating on RCI’s senior unsecured debt and BB+
on RCI’s senior subordinated debt. In July 2008 Standard & Poor’s
assigned its BBB- rating to each of the 2018 Notes and the 2038
Notes and affirmed each of the ratings noted above.
RATIO OF ADJUSTED
OPERATING PROFIT
TO INTEREST
Credit ratings are intended to provide investors with an indepen-
dent measure of credit quality of an issue of securities. Ratings for
debt instruments range from AAA, in the case of Standard & Poor’s
and Fitch, or Aaa in the case of Moody’s, which represent the high-
est quality of securities rated, to D, in the case of Standard & Poor’s,
C, in the case of Moody’s and Substantial Risk in the case of Fitch,
which represent the lowest quality of securities rated. The credit
ratings accorded by the rating
agencies are not recommenda-
tions to purchase, hold or sell
the rated securities inasmuch as
such ratings do not comment as
to market price or suitability for
a particular investor. There is no
assurance that any rating will
remain in effect for any given
period of time, or that any rating
will not be revised or withdrawn
entirely by a rating agency in the
future if in its judgment circum-
stances so warrant. The ratings
on RCI’s senior debt of BBB- from
Standard & Poor’s and Fitch and
of Baa3 from Moody’s represent
the minimum investment grade
ratings.
2007
2007
2006
2008
2008
4.7x
6.4x
7.1x
Deficiency of Pension Plan Assets Over Accrued Obligations
As disclosed in Note 17 to our 2008 Audited Consolidated Financial
Statements, our pension plans had a deficiency of plan assets over
accrued obligations of $66 million and $83 million at December 31,
2008, and December 31, 2007, respectively, related to funded plans,
and a deficiency of $27 million and $24 million at December 31, 2008
and December 31, 2007, respectively, related to unfunded plans.
Our pension plans had a deficiency on a solvency basis at December
31, 2007, and is anticipated to have a deficiency on a solvency basis
at December 31, 2008. Consequently, in addition to our regular
contributions, we are making certain minimum monthly special
payments to eliminate the solvency deficiency. In 2008, the special
payment totalled approximately $19 million. Our total estimated
annual funding requirements, which include both our regular con-
tributions and these special payments, are expected to increase from
$38 million in 2008 to $64 million in 2009, subject to annual adjust-
ments thereafter, due to various market factors and the assumption
that staffing levels at the Company will remain relatively stable year-
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
over-year. We are contributing to the plans on this basis. As further
discussed in the section of this MD&A entitled “Critical Accounting
Estimates”, changes in factors such as the discount rate, the rate of
compensation increase and the expected return on plan assets can
impact the accrued benefit obligation, pension expense and the
deficiency of plan assets over accrued obligations in the future.
INTEREST R ATE AND F OREIGN Ex CHANGE M ANAGEMENT
Economic Hedge Analysis
For the purposes of our discussion on the hedged portion of long-
term debt, we have used non-GAAP measures in that we include all
Cross-Currency Swaps, whether or not they qualify as hedges for
accounting purposes, since all such Cross-Currency Swaps are used
for risk management purposes only and are designated as a hedge
of specific debt instruments for economic purposes. As a result, the
Canadian dollar equivalent of U.S. dollar-denominated long-term
debt reflects the contracted foreign exchange rate for all of our
Cross-Currency Swaps regardless of qualifications for accounting
purposes as a hedge.
As discussed above, effective August 6, 2008 RCI entered into an
aggregate US$1.75 billion notional principal amount of Cross-
Currency Swaps. An aggregate US$1.4 billion notional principal
amount of these Cross-Currency Swaps hedge the principal and inter-
est obligations for the 2018 Notes through to maturity in 2018 while
the remaining US$350 million aggregate notional principal amount
of Cross-Currency Swaps hedge the principal and interest on the
2038 Notes for ten years to August 2018. The Cross-Currency Swaps
hedging the 2018 Notes have been designated as hedges against the
designated U.S. dollar-denominated debt for accounting purposes,
while the Cross-Currency Swaps hedging the 2038 Notes have not
been designated as hedges for accounting purposes.
Consolidated Hedged Position
(In millions of dollars, except percentages)
U.S. dollar-denominated long-term debt
Hedged with cross-currency interest rate exchange agreements
Hedged exchange rate
Percent hedged
Amount of long-term debt (2) at fixed rates:
Total long-term debt
Total long-term debt at fixed rates
Percent of long-term debt fixed
Weighted average interest rate on long-term debt
Also effective on August 6, 2008 and as discussed above, RCI re-cou-
poned three of our existing Cross-Currency Swaps by terminating the
original Cross-Currency Swaps aggregating US$575 million notional
principal amount and, simultaneously, entering into three new
Cross-Currency Swaps aggregating US$575 million notional prin-
cipal amount at then current market rates. In each case, only the
fixed foreign exchange rate and the Cdn$ fixed interest rate were
changed and all other terms for the new Cross-Currency Swaps are
identical to the respective terminated Cross-Currency Swaps they
are replacing. The termination of the three original Cross-Currency
Swaps resulted in us paying US$360 million (Cdn$375 million) for the
aggregate out-of-the-money fair value for the terminated Cross-
Currency Swaps on the date of termination, thereby reducing by an
equal amount, the fair value of the Cross-Currency Swaps liability
on that date. Each of the three new Cross-Currency Swaps has been
designated as a hedge against the designated U.S. dollar-denomi-
nated debt for accounting purposes.
On December 15, 2008, two of our Cross-Currency Swaps matured
on their scheduled maturity date and, as a result, we received
US$400 million and paid $475 million aggregate notional principal
amounts on the settlement at maturity. Also on December 15, 2008,
we settled a forward foreign exchange contract to sell an aggre-
gate US$400 million in exchange for $476 million. As a result of the
maturity of these Cross-Currency Swaps, our US$400 million 8.00%
Senior Subordinated Notes due 2012 are no longer hedged.
As a result of the activity described above, on December 31, 2008,
93% of our U.S. dollar-denominated debt was hedged on an eco-
nomic basis while 87% of our U.S. dollar-denominated debt was
hedged on an accounting basis. That is, as stated above, the US$350
million aggregate notional principal amount of Cross-Currency
Swaps hedging the 2038 Notes do not qualify as hedges for account-
ing purposes and our US$400 million 8.00% Senior Subordinated
Notes due 2012 are no longer hedged.
December 31, 2008
December 31, 2007
US
US
$ 5,940
$ 5,540
1.2043
93.3% (1)
US
US
$ 4,190
$ 4,190
1.3313
100.0%
Cdn
Cdn
$ 8,383
7,798
$
93.0%
Cdn
Cdn
$ 7,454
$ 6,214
83.4%
7.29%
7.53%
(1) Pursuant to the requirements for hedge accounting under Canadian Institute of Chartered Accountants (“CICA”) Handbook Section 3865, Hedges, on December 31, 2008, RCI accounted for 93% of its Cross-
Currency Swaps as hedges against designated U.S. dollar-denominated debt. As a result, 87% of our U.S. dollar-denominated debt is hedged for accounting purposes versus 93% on an economic basis.
(2) Long-term debt includes the effect of the Cross-Currency Swaps.
FIXED VERSUS FLOATING DEBT COMPOSITION
(%)
Fixed 93%
Floating 7%
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
53
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Fair Market Value Asset and Liability for Cross- Currency Swaps
In accordance with Canadian GAAP, we have recorded our Cross-
Currency Swaps at an estimated credit-adjusted mark-to-market
valuation which was determined by increasing the treasury-related
discount rates used to calculate the risk-free estimated mark-to-
market valuation by an estimated credit default swap spread (“CDS
Spread”) for the relevant term and counterparty for each Cross-
Currency Swap. In the case of Cross-Currency Swaps accounted for
as assets by Rogers (i.e. – those Cross-Currency Swaps for which
the counterparties owe Rogers), the CDS Spread for the bank
counterparty was added to the risk-free discount rate to deter-
mine the estimated credit-adjusted value whereas, in the case of
Cross-Currency Swaps accounted for as liabilities (i.e. - those Cross-
Currency Swaps for which Rogers owes the counterparties), Rogers’
CDS Spread was added to the risk-free discount rate. The estimated
credit-adjusted values of the Cross-Currency Swaps are subject to
changes in credit spreads of Rogers and its counterparties. In 2007,
we recorded our Cross-Currency Swaps at the estimated risk-free
fair value.
The effect of estimating the credit-adjusted fair value of Cross-
Currency Swaps at December 31, 2008 is illustrated in the table below.
As at December 31, 2008, the net liability of Rogers’ Cross-Currency
Swap portfolio increased by $10 million to $154 million versus the
net liability calculated on an unadjusted mark-to-market basis. The
increase in the net liability is a result of the estimated fair value of
the Cross-Currency Swaps accounted for as assets decreasing by
$65 million while the estimated fair value of the Cross-Currency
Swaps accounted for as liabilities decreased by $55 million.
(In millions of dollars)
Mark-to-market value – risk free analysis
Mark-to-market value – credit-adjusted estimate (carrying value)
Difference
Swaps
accounted
for as
assets (A)
Swaps
accounted
for as
liabilities (B)
Net liability
position
(A+B)
$
$
$
572
$
(716) $
(144)
507
$
(661) $
(154)
(65) $
55
$
(10)
Of the $10 million impact, $7 million was recorded in the consoli-
dated statement of income related to Cross-Currency Swaps not
accounted for as hedges and $3 million related to hedges was
recorded in other comprehensive income.
OUTSTANDING C OMMON S HARE D ATA
Set forth below is our outstanding common share data as at
December 31, 2008. For additional information, refer to Note 18 to
our 2008 Audited Consolidated Financial Statements.
Common Shares outstanding (1)
Class A Voting
Class B Non-Voting
Options to purchase Class B Non-Voting shares
Outstanding options
Outstanding options exercisable
December 31, 2008
112,462,014
523,429,539
13,841,620
9,228,740
(1) Holders of our Class B Non-Voting shares are entitled to receive notice of and to attend meetings of our shareholders, but, except as required by law or as stipulated by stock exchanges, are not entitled
to vote at such meetings. If an offer is made to purchase outstanding Class A Voting shares, there is no requirement under applicable law or RCI’s constating documents that an offer be made for the
outstanding Class B Non-Voting shares and there is no other protection available to shareholders under RCI’s constating documents. If an offer is made to purchase both Class A Voting shares and Class B
Non-Voting shares, the offer for the Class A Voting shares may be made on different terms than the offer to the holders of Class B Non-Voting shares.
ANNUALIZED DIVIDENDS
PER SHARE AT YEAR END
$0.16
$0.50
$1.00
2006
200 7
2007
2008
2008
DIVIDENDS AND O THER
PAYMENTS ON RCI E QUIT Y
SECURITIES
Our dividend policy is reviewed
periodically by the RCI Board
of Directors (“the Board”). The
declaration and payment of divi-
dends are at the sole discretion of
the Board and depend on, among
other things, our financial condi-
tion, general business conditions,
legal restrictions regarding the
payment of dividends by us, some
of which are referred to below,
and other factors that the Board
may, from time-to-time, consider
to be relevant. As a holding com-
pany with no direct operations,
we rely on cash dividends and
54
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
other payments from our subsidiaries and our own cash balances
and debt to pay dividends to our shareholders. The ability of our
subsidiaries to pay such amounts to us is subject to the various risks
as outlined in this MD&A. All dividend amounts have been restated
to reflect a two-for-one split of our Class B Non-Voting and Class A
Voting shares in December 2006.
In February 2009, the Board adopted a dividend policy which
increased the annual dividend rate from $1.00 to $1.16 per Class A
Voting and Class B Non-Voting share effective immediately to be
paid in quarterly amounts of $0.29 per share. Such quarterly divi-
dends are only payable as and when declared by our Board and
there is no entitlement to any dividend prior thereto.
In addition, on February 17, 2009, the Board declared a quarterly
dividend totalling $0.29 per share on each of its outstanding Class
B Non-Voting shares and Class A Voting shares, such dividend to be
paid on April 1, 2009, to shareholders of record on March 6, 2009,
and is the first quarterly dividend to reflect the newly increased
$1.16 per share annual dividend level.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
During 2008, the Board declared dividends aggregating $1.00 per
share on each of the outstanding Class B Non-Voting shares and
Class A Voting shares, $0.25 per share of which were paid on January
2, 2009 to shareholders of record on November 25, 2008, $0.25 per
share of which were paid on October 1, 2008, to shareholders of
record on September 3, 2008, $0.25 per share of which were paid on
July 2, 2008, to shareholders of record on May 13, 2008, and $0.25
of which were paid on April 1, 2008, to shareholders of record on
March 6, 2008.
In January 2008, the Board approved an increase in the annual divi-
dend from $0.50 to $1.00 per Class A Voting and Class B Non-Voting
share effective with the next quarterly dividend.
During 2007, the Board declared dividends aggregating $0.4150
per share on each of the outstanding Class B Non-Voting shares
and Class A Voting shares, $0.125 per share of which were paid on
January 2, 2008 to shareholders of record on December 12, 2007,
$0.125 per share of which were paid on October 1, 2007, to share-
holders of record on September 13, 2007, $0.125 per share of which
were paid on July 3, 2007, to shareholders of record on June 14,
2007, and $0.04 of which were paid on April 2, 2007, to shareholders
of record on March 15, 2007.
In May 2007, the Board approved an increase in the annual
dividend from $0.16 to $0.50 per share effective with the next
quarterly dividend.
During 2006, the Board declared dividends aggregating $0.0775
per share on each of the outstanding Class B Non-Voting shares
and Class A Voting shares, $0.0375 of which were paid on July 4,
2006 to shareholders of record on June 14, 2006, and $0.04 of
which were paid on January 2, 2007, to shareholders of record on
December 20, 2006.
In October 2006, our Board declared a 113% increase to the dividend
paid for each of the outstanding Class B Non-Voting shares and
Class A Voting shares. Accordingly, the annual dividend per share
increased from $0.075 per share to $0.16 per share, on a post-split
basis. In addition, the Board modified our dividend distribution
policy to make dividend distributions on a quarterly basis instead
of semi-annually. The first such distribution was made on January 2,
2007, to shareholders of record on December 20, 2006.
COMMITMENTS AND O THER C ONTR AC TUAL O BLIGATIONS
Contractual Obligations
Our material obligations under firm contractual arrangements are
summarized below at December 31, 2008. See also Notes 14, 15 and
23 to the 2008 Audited Consolidated Financial Statements.
Material Obligations Under Firm Contractual Arrangements
(In millions of dollars)
Long-term debt (1)
Derivative instruments (2)
Capital leases and other
Operating leases
Player contracts
Purchase obligations (3)
Pension obligation (4)
Other long-term liabilities
Total
Less Than
1 Year
1–3 Years
4–5 Years
–
–
1
159
97
465
64
4
1,235
168
–
242
155
555
–
81
2,508
137
–
149
87
189
–
43
After
5 Years
4,751
(414)
–
89
54
64
–
56
Total
8,494
(109)
1
639
393
1,273
64
184
790
2,436
3,113
4,600
10,939
(1) Amounts reflect principal obligations due at maturity.
(2) Amounts reflect net disbursements only, upon maturity.
(3) Purchase obligations consist of agreements to purchase goods and services that are enforceable and legally binding and that specify all significant terms, including fixed or minimum quantities to be
purchased, price provisions and timing of the transaction. In addition, we incur expenditures for other items that are volume-dependent.
(4) Represents expected contributions to our pension plans in 2009. Contributions for the year ended December 31, 2010 and beyond cannot be reasonably estimated as they will depend on future economic
conditions and may be impacted by future government legislation.
OFF-BAL ANCE S HEET A RR ANGEMENTS
Guarantees
As a regular part of our business, we enter into agreements that
provide for indemnification and guarantees to counterparties
in transactions involving business sale and business combination
agreements, sales of services and purchases and development of
assets. Due to the nature of these indemnifications, we are unable
to make a reasonable estimate of the maximum potential amount
we could be required to pay counterparties. Historically, we have
not made any significant payment under these indemnifications or
guarantees. Refer to Note 15(e)(ii) to the 2008 Audited Consolidated
Financial Statements.
Derivative Instruments
As previously discussed, we use derivative instruments to manage
our exposure to interest rate and foreign currency risks. We do not
use derivative instruments for speculative purposes.
Operating Leases
We have entered into operating leases for the rental of prem-
ises, distribution facilities, equipment and microwave towers and
other contracts. The effect of terminating any one lease agree-
ment would not have an adverse effect on us as a whole. Refer to
“Contractual Obligations” above and Note 23 to the 2008 Audited
Consolidated Financial Statements.
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
55
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
4. OPERATING ENVIRONMENT
Additional discussion of regulatory matters and recent develop-
ments specific to the Wireless, Cable and Media segments follows.
GOVERNMENT REGUL ATION AND REGUL ATORY
DEVELOPMENTS
Substantially all of our business activities, except for Cable’s
Rogers Retail segment and the non-broadcasting operations of
Media, are subject to regulation by one or more of: the Canadian
Federal Department of Industry, on behalf of the Minister of
Industry (Canada) (collectively, “Industry Canada”), the CRTC under
the Telecommunications Act (Canada) (the “Telecommunications
Act”) and the CRTC under the Broadcasting Act (Canada) (the
“Broadcasting Act”), and, accordingly, our results of operations are
affected by changes in regulations and by the decisions of these
regulators.
Canadian Radio -television and Telecommunications
Commission
Canadian broadcasting operations, including our cable television
systems, radio and television stations, and specialty services are
licenced (or operated pursuant to an exemption order) and regu-
lated by the CRTC pursuant to the Broadcasting Act. Under the
Broadcasting Act, the CRTC is responsible for regulating and super-
vising all aspects of the Canadian broadcasting system with a view
to implementing certain broadcasting policy objectives enunciated
in that Act.
The CRTC is also responsible under the Telecommunications Act for
the regulation of telecommunications carriers, which includes the
regulation of Wireless’ mobile voice and data operations and Cable’s
Internet and telephone services. Under the Telecommunications Act,
the CRTC has the power to forbear from regulating certain services
or classes of services provided by individual carriers. If the CRTC finds
that a service or class of services provided by a carrier is subject to a
degree of competition that is sufficient to protect the interests of
users, the CRTC is required to forbear from regulating those services
unless such an order would be likely to unduly impair the establish-
ment or continuance of a competitive market for those services.
All of our Cable and telecommunications retail services have been
deregulated and are not subject to price regulation. However, regu-
lations can and do affect the terms and conditions under which we
offer these services. Accordingly, any change in policy, regulations
or interpretations could have a material adverse effect on Cable’s
operations and financial condition and operating results.
Copyright Board of Canada
The Copyright Board of Canada (“Copyright Board”) is a regula-
tory body established pursuant to the Copyright Act (Canada) (the
“Copyright Act”) to oversee the collective administration of copy-
right royalties in Canada and to establish the royalties payable
for the use of certain copyrighted works. The Copyright Board is
responsible for the review, consideration and approval of copy-
right tariff royalties payable to copyright collectives by Canadian
broadcasting undertakings, including cable, radio, television and
specialty services.
Industry Canada
The technical aspects of the operation of radio and television
stations, the frequency-related operations of the cable television
networks and the awarding and regulatory supervision of spectrum
for cellular, messaging and other radio-telecommunications systems
in Canada are subject to the licencing requirements and oversight
of Industry Canada. Industry Canada may set technical standards for
telecommunications under the Radiocommunication Act (Canada)
(the “Radiocommunication Act”) and the Telecommunications Act.
Restrictions on Non- Canadian Ownership and Control
Non-Canadians are permitted to own and control directly or indi-
rectly up to 33.3% of the voting shares and 33.3% of the votes of a
holding company that has a subsidiary operating company licenced
under the Broadcasting Act. In addition, up to 20% of the voting
shares and 20% of the votes of the operating licencee company may
be owned and controlled directly or indirectly by non-Canadians.
The chief executive officer and 80% of the members of the Board
of Directors of the operating licencee must be resident Canadians.
There are no restrictions on the number of non-voting shares that
may be held by non-Canadians at either the holding-company or
licencee-company level. Neither the Canadian carrier nor its parent
may be otherwise controlled in fact by non-Canadians. The CRTC
has the jurisdiction to determine as a question of fact whether a
given licencee is controlled by non-Canadians.
Pursuant to the Telecommunications Act and associated regula-
tions, the same rules apply to Canadian carriers such as Wireless,
except that there is no requirement that the chief executive officer
be a resident Canadian. The same restrictions are contained in the
Radiocommunication Act and associated regulations.
In July 2007, the federal government appointed the Competition
Policy Review Panel. Among other things, this panel examined for-
eign ownership rules in Canada’s communications sector and in
June 2008 issued its report. While this panel and its report have
no force of law, the report recommended that non-Canadians be
permitted to start new telecommunications carriers in Canada and
to purchase existing carriers which have less than 10 percent of the
Canadian telecommunications market. The report further recom-
mends that after five years, following a review of broadcasting
and cultural policies including foreign investment, telecommuni-
cations and broadcasting foreign ownership restrictions should be
liberalized in a manner that is competitively neutral for telecom-
munications and broadcasting companies. There is no certainty of
implementation. Similar recommendations have been made as a
result of previous studies over the past several years which did not
result in any changes by government.
Policy Direction to the CRTC on Telecommunications
In December 2006, the Minister of Industry issued a Policy Direction
on Telecommunications to the CRTC under the Telecommunications
Act. The Direction instructs the CRTC to rely on market forces to the
maximum extent feasible under the Telecommunications Act and
regulate, if needed, in a manner that interferes with market forces
to the minimum extent necessary.
56
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Proposed Legislation
Bill C-555, An Act to Provide Clarity and Fairness in the Provision
of Telecommunications Services in Canada, received a first read-
ing in the House of Commons. Due to the federal election held on
October 14, 2008, this Bill did not proceed. Bill C-555 was a private
members bill and not government legislation. If passed, the bill
would have required the Minister of Industry to amend the licence
conditions of PCS and cellular spectrum licences to prohibit carri-
ers from charging additional fees or charges that are not part of
the subscriber’s monthly fee or monthly rate plan. The bill would
have also required the CRTC to inquire into, and make a report
on, a wide range of issues including billing, cell phone locking,
information regarding network speeds and limitations, network
management practices and the Commissioner for Complaints for
Telecommunications Services.
The Office de la Protection du Consommateur in Quebec is propos-
ing to introduce amendments to the Quebec Consumer Protection
Act that would affect sequential performance contracts provided
remotely, including wireless, wireline and Internet service con-
tracts. These amendments would limit the term of such contracts
to two years, impose a limit on the early cancellation fees that can
be charged to customers, prohibit the setting of an expiry date on
prepaid phone cards, regulate the content and the form of such
contracts as well as the termination and renewal rights of the con-
sumers. The amendments also propose to institute a right of action
for consumer protection associations to apply for discontinuance
of practices or contractual clauses that contravene the Quebec
Consumer Protection Act.
The Conservative government of Canada has stated it will
strengthen the Commissioner for Complaints for Telecommunica-
tions Services, introduce a Wireless Code of Conduct, prohibit
charges for unsolicited incoming SMS messages and give the CRTC
power to block unfair charges. Rogers does not currently charge
for incoming SMS messages.
WIRELESS REGUL ATION AND REGUL ATORY DEVELOPMENTS
Advanced Wireless Services (“AWS” ) Auction, Roaming and
Tower/Site Policy
In November 2007, Industry Canada released its policy framework
for the AWS auction in a document entitled Policy Framework for
the Auction for Spectrum Licences for Advanced Wireless Services
and other Spectrum in the 2 GHz Range. Of the 90 MHz of available
AWS spectrum, 40 MHz were set aside for new entrants.
The policy further prescribed that all carriers are allowed to roam
on the networks of other carriers outside of their licenced territo-
ries. New entrants are able to roam on the networks of incumbent
carriers for five years within their licenced territories and for
10 years nationally. National new entrant licencees will be entitled
to five years of roaming and a further five years if they comply with
specified rollout requirements. Roaming privileges enable new
entrants to potentially enter the market on a broader geographic
scale more quickly.
New entrants are defined as carriers with less than 10% of Canada’s
wireless revenue. Roaming is to be provided at commercial rates.
In the event that the parties cannot agree, the rates and other
terms will be settled by an arbitrator. Industry Canada expects
that roaming will be offered at commercial rates that are reason-
ably comparable to rates that are currently charged to others for
similar services. Industry Canada also mandated antenna tower
and site sharing for all holders of spectrum licences, radio licences
and broadcasting certificates. All of these entities must share tow-
ers and antenna sites where technically feasible at commercial
rates. Where parties cannot agree on terms, the terms will be set
by arbitration. It is expected that site-sharing arrangements would
be offered at commercial rates that are reasonably comparable to
rates currently charged to others for similar access.
In February 2008, Industry Canada issued Responses to Questions
for Clarification on the AWS Policy and Licencing Frameworks,
which answered questions about the AWS spectrum auction and
about tower sharing and roaming obligations of licencees. This was
followed in February 2008 by revised conditions of licence which
imposed those obligations on wireless carriers. The documents
clarified that roaming must provide connectivity for digital voice
and data services regardless of the spectrum band or underlying
technology used. The policy does not require a host network car-
rier to provide a roamer with a service which that carrier does not
provide to its own subscribers, nor to provide a roamer with a ser-
vice, or level of service, which the roamer’s network carrier does
not provide. The policy also does not require seamless communica-
tions hand-off between home and host networks.
The Auction commenced on May 27, 2008 and concluded on July 21,
2008. Rogers was the only party to successfully obtain 20 MHz of
AWS spectrum nationally and received its licences on December 22,
2008. Several other provisional winners also received their licences
at same time. Many new entrants are still waiting for their licences,
pending approval of their Canadian ownership and control review.
Tower Policy
In June 2007, Industry Canada released its new Tower Policy
(CPC-2-0-03 – Radiocommunication and Broadcasting Antenna
Systems). The policy will require wireless carriers and broadcasters
to engage in more local and public consultation prior to erecting or
significantly modifying antenna structures. The new policy could
make it more difficult for Wireless and Rogers Broadcasting to
erect towers required for their businesses. The new policy became
effective January 1, 2008.
Inukshuk
In March 2006, Industry Canada approved the transfer of Wireless’
Inukshuk licence to Inukshuk Wireless Partnership, a Rogers-Bell
joint venture. New licence terms were also issued. These licence
terms require Inukshuk to return spectrum that it is not using as
of December 31, 2009. At the same time as the licence was issued,
Industry Canada issued their new policy on the 2.5 GHz spectrum
used by Inukshuk. The policy confirms that the spectrum is cur-
rently only to be used for fixed services (which, in Canada, includes
portable services). Companies that wish to have a mobile licence for
this spectrum will be required to apply for a mobile licence and will
be required to return one-third of the spectrum to the government.
The returned spectrum will be auctioned. There is no assurance
that Wireless or any other incumbent licencee would be allowed to
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
57
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
purchase the spectrum at an auction. See discussion below entitled
“We Are and Will Continue to Be Involved in Litigation”.
Canadian new media content could be subsidized. Certain parties
argue in the proceeding that ISPs, such as Cable, should pay contri-
butions to a fund to subsidize Canadian new media content.
In SAB-002-06 Consultation on Implementation Matters Related
to the Band Plan and the Mobile Service for the Band 2500 –
2690 MHz, Industry Canada announced a consultation process on
2.5 GHz spectrum. This process is to include a discussion of the
implementation matters associated with harmonizing with the U.S.
band plan. The process will also examine issues related to setting
a firm transition date to allow for nation-wide implementation of
the band plan and the mobile service.
Wireless Enhanced E911 Service
In February 2009, the CRTC released Telecom Regulatory Policy
CRTC 2009-40 issuing a directive to the wireless industry to com-
plete the deployment of wireless Phase II enhanced E9-1-1 service
in Canada by February 2010. Phase II allows wireless carriers to send
more accurate location information with each 9-1-1 call. We are cur-
rently testing, developing and rolling out the required geo-location
technology in our network. We expect to be able to meet the CRTC
deadline. Wireless service providers must inform their customers
of the availability, characteristics and limitations of their enhanced
911 services before they are implemented, and reiterate them on an
annual basis thereafter.
C ABLE REGUL ATION AND REGUL ATORY DEVELOPMENTS
Part II Fees
The CRTC collects two different types of fees from broadcast licen-
cees which are known as Part I and Part II fees. In 2003 and 2004,
lawsuits were commenced in the Federal Court alleging that the
Part II licence fees are taxes rather than fees and that the regula-
tions authorizing them are unlawful. On December 14, 2006, the
Federal Court ruled that the CRTC did not have the jurisdiction to
charge Part II fees. On October 15, 2007, the CRTC sent a letter to
all broadcast licencees stating that the CRTC would not collect Part
II fees due in November, 2007. As a result, in the third quarter of
2007, the Company reversed its accrual of $18 million related to Part
II fees from September 1, 2006 to June 30, 2007. Both the Crown
and the applicants appealed this case to the Federal Court of
Appeal. On April 28, 2008, the Federal Court of Appeal overturned
the Federal Court and ruled that Part II fees are valid regulatory
charges. As a result, during the second quarter of 2008, Cable and
Media recorded charges of approximately $30 million and $7 million,
respectively, for CRTC Part II fees covering the period September 1,
2006 to March 31, 2008 ($25 million and $6 million for the period
September 1, 2006 to December 31, 2007 for Cable and Media,
respectively). In addition to recording $5 million and $2 million in
the second quarter of 2008, for Cable and Media, respectively, we
continue to record these fees on a prospective basis in operating,
general and administrative expenses. Leave to appeal the April 28,
2008 Federal Court of Appeal decision was granted by the Supreme
Court on December 18, 2008. Although the Supreme Court will hear
the appeal, there is no assurance that the Court will overturn the
Federal Court of Appeal decision.
New Media Proceeding
The CRTC has commenced a major proceeding dealing with what it
refers to as New Media. They are reviewing any existing New Media
Exemption Order which exempts all broadcasting content on the
Internet from regulation. They are also considering ways in which
58
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
Diversity of Ownership
In light of acquisition announcements in the Canadian broadcast-
ing industry during 2007, the CRTC launched a public proceeding to
review its approach to ownership consolidation and the availability
of a diversity of voices in the broadcasting system. The CRTC exam-
ined issues such as common ownership; concentration of ownership;
horizontal and vertical integration; the benefits policy; licence traf-
ficking; as well as the CRTC’s relationship with the Competition
Bureau. The decision, released in January 2008, determined that
a company would not be able to own local newspapers, televi-
sion stations and radio stations in a given local market. Television
broadcasters cannot own more than 45% of the market (including
both over-the-air and specialty) measured by total hours tuned.
Broadcast distribution undertakings cannot control all of the dis-
tribution networks in a market. Management does not believe that
these restrictions will impact our current plans.
Review of Broadcasting Regulations including Fee -for- Carriage
and Distant Signal Fees
In October 2008, the CRTC released its Decision on the Review of
Broadcasting Regulations proceeding initiated by Broadcasting
Notice of Public Hearing 2007-10. The CRTC issued new policy
frameworks for cable and satellite companies and pay and specialty
services aimed at streamlining existing packaging rules and relaxing
genre protection rules for news and sports services. Most of its pro-
posed changes do not take effect until August 31, 2011. The CRTC
again rejected fee-for-carriage for local broadcasters. However, it
decided to levy a new 1% tax on cable and DTH revenues (start-
ing in September 2009) to fund local TV programming. It will also
allow broadcasters to negotiate payments with cable and satellite
companies for carriage of distant signals. It also announced further
proceedings regarding advertising on local commercial availabili-
ties and VOD.
Copyright Legislation
The federal government introduced amendments to the Canadian
copyright legislation in the House of Commons in June 2008. The
Bill would have required Internet service providers (“ISPs”) to use a
“notice and notice” regime whereby notices would have been sent
to the ISPs alleging copyright infringement. The ISP would then for-
ward these notices to its customers. This would have been similar to
the procedure currently used by us and therefore would not have
imposed any new costs. The copyright legislation would also have
legalized forms of copying currently used by Cable’s customers, but
would not have permited cable operators to use network PVR tech-
nology. Since an election was called in September 2008, this Bill did
not proceed. The Conservative government has pledged to reintro-
duce similar legislation.
Canadian Television Fund (“C TF” )
In June 2008, the CRTC reported to the government (Canadian
Heritage) on proposed changes to the CTF. It recommended sep-
arating private and public funding into two streams and creating
two separate boards of directors. The CRTC denied proposals
by some cable operators to opt-out of paying contributions. The
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
report did not propose increases in the contributions currently paid
by broadcasting distribution undertakings (“BDU”) such as Cable.
Internet Traffic Management
In November 2008, the CRTC issued Telecom Public Notice 2008-19
initiating a proceeding to consider Internet traffic management
practices for both wholesale and retail Internet services. The pro-
ceeding will include an oral public hearing in July 2009.
Essential Facilities
In June 2008, the Federal Court of Appeal denied the leave to
appeal application from Bell Canada et al which sought to appeal
the CRTC’s essential facilities decision. Bell Canada and other parties
also applied to the CRTC with review and vary applications seeking
to reverse some limited aspects of the essential facilities decision.
Rogers generally opposed these review and vary applications.
Three of these applications were denied by the CRTC in December
2008. In January 2009, in response to the last application, the CRTC
did amend its Decision in order to permit negotiated agreements
for certain services. The amendment provides the incumbent local
telephone companies with additional pricing flexibility.
MEDIA R EGUL ATION AND R EGUL ATORY D EVELOPMENTS
Commercial Radio Copyright Tariffs
In February 2008, the Copyright Board reaffirmed the rates it set
in 2005 for fees payable to the Society of Composers, Authors and
Music Publishers of Canada (“SOCAN”) and Neighbouring Rights
Collective of Canada (“NRCC”) for use of music from 2003 to 2007.
In its reaffirmation of the SOCAN-NRCC decision, the Copyright
Board also granted the CAB’s request for a consolidated tariff pro-
ceeding. The CAB hopes to persuade the Copyright Board to set an
overall valuation for the use of music by commercial radio, which
would then be divided amongst the collectives.
The consolidated radio tariff proceeding commenced in December
2008, with the Copyright Board considering tariff proposals filed
by music collectives: SOCAN, NRCC, CSI, AVLA/SOPROQ, and ArtistI.
The CAB is representing radio broadcasters and will argue for an
“all-in broadcaster tariff” that, if achieved, will effectively ration-
alize payments and reduce the impact of the collectives’ multiple
tariff demands. The CAB is arguing that from a pure economic
standpoint, the combined rate should be 2.8% for all tariffs. In the
alternative “multiple tariff” approach, the maximum combined
rate should be 5.96%. With respect to talk-based radio stations,
the CAB is arguing that the existing 20% “low music rate” should
continue, and a “very low music rate” for stations at or below 5%
music use (exclusive of production music) should be set at a “double
discount”. A decision is anticipated in 2009.
New Media Proceeding
Further to the issues noted above under Cable, the CRTC’s New
Media proceeding will also consider whether obligations (content
and/or spending) should be imposed on websites containing broad-
cast content and particularly sites linked to traditional (regulated)
broadcast stations and services (e.g.Citytv.com; Sportsnet.ca).
Review of Broadcasting Regulations
Further to the issues noted above under Cable (Review of
Broadcasting Regulations), the CRTC’s new policy for the distribu-
tion of specialty services has also opened up mainstream sports and
national news genres to competition with the removal of genre
protection entirely for these services including Rogers Sportsnet.
Accordingly, these services will no longer have genre protection or
mandatory access requirements (“must carry” rights). As a result,
Rogers Sportsnet will no longer be required to limit its service to
regional sports and can compete directly with TSN as a national
sports service.
Rogers’ over-the-air television stations will have limited access to
the CRTC’s new local TV fund as our stations operate primarily in
urban markets. Citytv, and OMNI to a lesser extent, post-August 31,
2011, will be able to negotiate payments with cable and satellite
companies for carriage of their signals into distant markets.
Licence Renewals
In February 2009, the CRTC announced that it intends to issue one-
year renewals for all private conventional television stations. This
process will allow it to consider group-based (conventional and
discretionary specialty) licence renewals in the spring of 2010. The
Rogers group would include the Citytv and OMNI conventional
television stations and the specialty services; Rogers Sportsnet,
G4TechTV Canada, OLN and The Biography Channel Canada. A
CRTC hearing will occur in April 2009 which may affect conven-
tional station licences in regard to Canadian programming prior to
the spring 2010 process.
COMPETITION IN OUR B USINESSES
We currently face significant competition in each of our primary
businesses from entities providing substantially similar services.
Each of our segments also faces competition from entities utilizing
alternative communications and transmission technologies and may
face competition from other technologies being developed or to be
developed in the future. Below is a discussion of the specific compe-
tition facing each of our Wireless, Cable and Media businesses.
Wireless Competition
At December 31, 2008, the highly-competitive Canadian wireless
industry had approximately 21.7 million subscribers. Competition
for wireless subscribers is based on price, scope of services, service
coverage, quality of service, sophistication of wireless technology,
breadth of distribution, selection of equipment, brand and mar-
keting. Wireless also competes with its rivals for dealers and retail
distribution outlets.
In the wireless voice and data market, Wireless competes primar-
ily with two other national wireless service providers and regional
players, and with resellers such as Virgin Mobile Canada, Primus,
Vidéotron, and other emerging providers using alternative wireless
technologies, such as WiFi “hotspots”. Wireless messaging (or one-
way paging) also competes with a number of local and national
paging providers and potential users of wireless voice and data
systems may find their communications needs satisfied by other
current or development technologies, such as WiFi “hotspots” or
trunk radio systems, which have the technical capability to handle
mobile telephone calls.
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
59
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Industry Canada’s auction for AWS spectrum concluded on July
21, 2008. Each of the three large incumbent wireless operators,
Rogers, Bell Canada and TELUS, acquired spectrum licences of vary-
ing sizes and in varying markets across Canada. Rogers acquired
20 MHz of spectrum across the country, while Bell Canada and
TELUS each acquired a mix of 10 MHz and 20 MHz spectrum licences
across the country with the exception of Bell Canada in the Eastern
Townships, Québec licence territory, where Bell did not obtain spec-
trum. MTS Allstream Inc., and Saskatchewan Telecommunications
Holding Corporation acquired spectrum only in Manitoba and
Saskatchewan, respectively.
One of the biggest forces for potential change in the telecommu-
nications industry is the threat of substitution of the traditional
wireline video, voice and data services by new technologies.
Internet delivery is increasingly becoming a direct threat to voice
and video service delivery. Younger generations use the Internet as
a substitute for traditional wireline telephone and television ser-
vices. The use of mobile phones among younger generations has
resulted in some abandonment of wireline service. Wireless-only
households are increasing although the vast majority of homes
today continue to use standard home telephone service. In addi-
tion, wireless Internet service is increasing in popularity.
Through the auction, six new entrants acquired substantial regional
holdings of AWS spectrum, and several much smaller companies
acquired small amounts of spectrum in generally isolated locations.
These new entrants could provide Wireless with substantial com-
petition in the regions in which they have acquired licences. These
new entrants may also partner with one another or our other
competitors providing competition to Wireless in more than one
region or on a national scale. These new entrants are able to roam
on the networks of incumbent carriers for five years within their
licenced territories and for 10 years outside their licenced territo-
ries. Roaming privileges enable new entrants to potentially enter
the market on a broader geographic scale more quickly. Currently,
no single potential entrant has acquired spectrum sufficient to
become a national licencee as defined by Industry Canada to
qualify for mandated roaming on a national basis for 10 years. See
above under “Wireless Regulation and Regulatory Developments”
regarding Advanced Wireless Services (“AWS”) Auction, Roaming
and Tower/Site Policy.
Media Competition
Broadcasting’s radio stations compete with the other stations in
their respective market areas as well as with other media, such as
newspapers, magazines, television, outdoor advertising, direct
mail marketing and the Internet. Competition within the radio
broadcasting industry occurs primarily in individual market areas,
amongst individual market stations. On a national level, Media’s
Broadcasting division competes generally with other larger radio
operators, which own and operate radio station clusters in markets
across Canada. Additionally, over the past several years the CRTC has
granted additional licences in various markets for the development
of new radio stations, which in turn provide additional competi-
tion to the established stations in the respective markets. Two new
licenced satellite subscription-based radio services now provide
competition to Broadcasting’s radio stations. New technologies,
such as on-line web information services, music downloading, MP3
players and on-line music streaming services, provide competition
for broadcasting radio stations’ audience share.
Cable Competition
Canadian cable television systems generally face legal and ille-
gal competition from several alternative Canadian multi-channel
broadcasting distribution systems, illegal reception of U.S. direct
broadcast satellite services, terrestrially-based video service pro-
viders, satellite master antenna television, and multi-channel,
multi-point wireless distribution systems, as well as from the direct
reception by antenna of over-the-air local and regional broadcast
television signals. In addition, the availability of television shows
and movies on the Internet is increasingly becoming a direct com-
petitor to Canadian cable television systems.
Cable’s Internet access services compete generally with a number
of other Internet Service Providers (“ISPs”) offering competing
residential and commercial dial-up and high-speed Internet access
services. The Rogers Hi-Speed Internet services, where available,
compete directly with Bell’s DSL Internet service in the Internet
market in Ontario, with the DSL Internet services of Aliant in New
Brunswick and Newfoundland and Labrador, and various DSL resell-
ers in local markets.
Rogers Retail competes with other DVD and video game sales and
rental store chains, as well as individually owned and operated outlets
and, more recently, on-line-based subscription rental services and ille-
gally downloaded movies and television shows as well as distributors
of copied DVDs. Competition is principally based on location, price
and availability of titles. Rogers Retail also competes with other retail
stores that sell wireless and video products of our competitors.
On a product level, The Shopping Channel competes with various
retail stores, catalog retailers, Internet retailers and direct mail
retailers. On a broadcasting level, The Shopping Channel competes
with other television channels for viewer attention and loyalty, and
particularly with infomercials selling products on television.
The Canadian magazine industry is highly-competitive, compet-
ing for both readers and advertisers. This competition comes from
other Canadian magazines and from foreign, mostly U.S., titles
that sell in significant quantities in Canada. In the past, the com-
petition from foreign titles has been restricted to competition for
readers as there have been restrictions on foreigners operating in
the Canadian magazine advertising market. These restrictions were
significantly reduced as a result of the enactment in 1999 of the
Foreign Publishers Advertising Services Act (Canada) and amend-
ments to the Canadian Tax Act. Increasing competition from U.S.
magazines for advertising revenues is expected in the coming years.
On-line information and entertainment websites compete with the
Canadian magazine publications for readership and revenue.
OMNI, Citytv and Sportsnet compete principally for viewers and
advertisers with television stations that broadcast in their local
markets. These include Canadian television stations as well as
U.S. border stations, specialty channels and increasingly with
other distant Canadian signals and U.S. border stations given the
time-shifting capacity available to digital subscribers. On-line infor-
mation and entertainment and video downloading compete with
OMNI, Citytv and Sportsnet for share of viewership.
60
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Sports Entertainment competes principally for audiences with
other Major League Baseball teams and other professional sports,
while Rogers Centre competes with other local sporting and special
event venues.
RISkS AND U NCERTAINTIES A FFEC TING OUR B USINESSES
Our business is subject to risks and uncertainties that could result
in a material adverse effect on our business and financial results. A
discussion of the risks and uncertainties to us and our subsidiaries,
as well as a discussion of the specific risks and uncertainties associ-
ated with each of our businesses, is presented below.
Currently, Edward Rogers is the Control Trust Chair and Melinda
M. Rogers is the Control Trust Vice-Chair. The Advisory Committee
members are appointed in accordance with the estate arrange-
ments and include members of the Rogers family, trustees of a
Rogers family trust, and other individuals, including certain mem-
bers of the Rogers Communications Board of Directors.
The Rogers Control Trust satisfies the Canadian ownership and con-
trol requirements that apply to RCI and its regulated subsidiaries,
and RCI made all necessary filings relating to the Trust with the rel-
evant Canadian regulatory authorities in January 2009.
RISkS AND UNCERTAINTIES APPLIC ABLE TO RCI AND ITS
SUBSIDIARIES
We Face Substantial Competition.
The competition facing our businesses is described in the section
entitled “Competition In Our Businesses”. There can be no assur-
ance that our current or future competitors will not provide services
comparable or superior to those we provide, or at lower prices,
adapt more quickly to evolving industry trends or changing market
requirements, enter the market in which we operate, or introduce
competing services. Any of these factors could reduce our market
share or decrease our revenue or increase churn. Wireless antici-
pates some ongoing re-pricing of the existing subscriber base as
lower pricing offered to attract new customers is extended to or
requested by existing customers. In addition, as wireless pen-
etration of the population deepens, new wireless customers may
generate lower average monthly revenues than those generated
from existing customers, which could slow revenue growth.
The CRTC Broadcasting Distribution Regulations do not allow Cable
or its competitors to obtain exclusive contracts in buildings where
it is technically feasible to install two or more systems.
We Are Controlled by One Shareholder.
Prior to his death in December 2008, Edward S. “Ted” Rogers con-
trolled Rogers Communications Inc. through his ownership of
voting shares of a private holding company. RCI has been informed
that under Mr. Rogers’ estate arrangements, those voting shares,
and consequently voting control of RCI and its subsidiaries, passed
to the Rogers Control Trust, a trust of which the trust company sub-
sidiary of a Canadian chartered bank is Trustee and members of
the family of the late Mr. Rogers are beneficiaries. Private Rogers
family holding companies controlled by the Rogers Control Trust
together own approximately 90.9% of the Class A Voting shares of
RCI and 7.5% of the Class B Non-Voting shares.
The Rogers Control Trust holds voting control of the Rogers group
of companies for the benefit of successive generations of the
Rogers family. The governance structure of the Rogers Control
Trust comprises the Control Trust Chair (who acts in effect as the
chief executive of the Control Trust), the Control Trust Vice-Chair,
the corporate trustee, and a committee of advisors (the Advisory
Committee). The Control Trust Chair will act as the representative
of the controlling shareholder in dealing with RCI on the compa-
ny’s long-term strategy and direction, and vote the Class A Voting
shares of RCI held by the private Rogers family holding companies in
accordance with the estate arrangements. The Control Trust Vice-
Chair assists the Control Trust Chair in the performance of his or her
duties and both are accountable to the Advisory Committee.
Our Holding Company Structure May Limit Our Ability to Meet
Our Financial Obligations.
As a holding company, our ability to meet our financial obligations
is dependent primarily upon the receipt of interest and principal
payments on intercompany advances, rental payments, cash divi-
dends and other payments from our subsidiaries together with
proceeds raised by us through the issuance of equity and debt and
from the sale of assets.
Substantially all of our business activities are operated by our
subsidiaries, other than certain centralized functions, such as pay-
ables, remittance processing, call centres, real estate, and certain
shared information technology functions. All of our subsidiaries
are distinct legal entities and have no obligation, contingent or
otherwise, to make funds available to us whether by dividends,
interest payments, loans, advances or other payments, subject to
payment arrangements on intercompany advances. In addition, the
payment of dividends and the making of loans, advances and other
payments to us by these subsidiaries are subject to statutory or
contractual restrictions, are contingent upon the earnings of those
subsidiaries and are subject to various business and other consid-
erations. Certain subsidiaries provide unsecured guarantees of our
bank and public debt and Cross-Currency Swaps.
Changes in Government Regulations Could Adversely Affect
Our Results of Operations in Wireless, Cable and Media.
As described under Government Regulation and Regulatory
Developments, substantially all of our business activities are reg-
ulated by Industry Canada and/or the CRTC, and accordingly our
results of operations on a consolidated basis could be adversely
affected by changes in regulations and by the decisions of these
regulators. This regulation relates to, among other things, licenc-
ing, competition, the cable television programming services that
we must distribute, wireless and wireline interconnection agree-
ments, the rates we may charge to provide access to our network
by third parties, resale of our networks and roaming on to our net-
works, our operation and ownership of communications systems
and our ability to acquire an interest in other communications sys-
tems. In addition, the costs of providing services may be increased
from time-to-time as a result of compliance with industry or legis-
lative initiatives to address consumer protection concerns or such
Internet-related issues as copyright infringement, unsolicited com-
mercial e-mail, cyber-crime and lawful access. Our cable, wireless
and broadcasting licences may not generally be transferred with-
out regulatory approval.
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
61
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Generally, our licences are granted for a specified term and are
subject to conditions on the maintenance of these licences. These
licencing conditions may be modified at any time by the regulators.
The regulators may decide not to renew a licence when it expires
and any failure by us to comply with the conditions on the mainte-
nance of a licence could result in a revocation or forfeiture of any
of our licences or the imposition of fines.
The licences include conditions requiring us to comply with
Canadian ownership restrictions of the applicable legislation. We
are currently in compliance with all of these Canadian ownership
and control requirements. However, if these requirements are vio-
lated, we would be subject to various penalties, possibly including,
in the extreme case, the loss of a licence.
We May Engage in Unsuccessful Acquisitions or Divestitures.
Acquisitions of complementary businesses and technologies, devel-
opment of strategic alliances and divestitures of portions of our
business are an active part of our overall business strategy. Services,
technologies, key personnel or businesses of acquired companies
may not be effectively assimilated into our business or service
offerings and our alliances may not be successful. We may not be
able to successfully complete any divestitures on satisfactory terms,
if at all. Divestitures may result in a reduction in our total revenues
and net income.
We Have Substantial Debt and Interest Payment Requirements
that May Restrict our Future Operations and Impair our Ability
to Meet our Financial Obligations.
Our substantial debt may have important consequences. For
instance, it could:
• Make it more difficult for us to satisfy our financial obligations;
• Require us to dedicate a substantial portion of any cash flow
from operations to the payment of interest and principal due
under our debt, which would reduce funds available for other
business purposes;
• Increase our vulnerability to general adverse economic and
industry conditions;
• Limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate;
• Place us at a competitive disadvantage compared to some of our
competitors that have less financial leverage; and
• Limit our ability to obtain additional financing required to fund
working capital and capital expenditures and for other general
corporate purposes.
Our ability to satisfy our obligations and to reduce our total debt
depends on our future operating performance and on economic,
financial, competitive and other factors, many of which are beyond
our control. Our business may not generate sufficient cash flow
and future financings may not be available to provide sufficient net
proceeds to meet these obligations or to successfully execute our
business strategy.
We Are Subject to Various Risks from Competing Technologies.
There are several technologies that may impact the way in which
our services are delivered. These technologies include broadband,
IP-based voice, data and video delivery services; the mass market
deployment of optical fibre technologies to the residential and
business markets; the deployment of broadband wireless access,
and wireless services using radio frequency spectrum to which we
may have limited access. These technologies may result in signifi-
cantly different cost structures for the users of the technologies,
and may consequently affect the long-term viability of certain
of our currently deployed technologies. Some of these new tech-
nologies may allow competitors to enter our markets with similar
products or services that may have lower cost structures. Some
of these competitors may be larger with more access to financial
resources than we have.
We May Fail to Achieve Expected Revenue Grow th from New
and Advanced Services.
We expect that a substantial portion of our future revenue growth
will be achieved from new and advanced services. Accordingly, we
have invested and continue to invest significant capital resources in
the development of our networks in order to offer these services.
However, there may not be sufficient consumer demand for these
new and advanced services. Alternatively, we may fail to anticipate
or satisfy demand for certain products and services, or may not be
able to offer or market these new products and services successfully
to subscribers. The failure to attract subscribers to new products and
services, or failure to keep pace with changing consumer preferences
for products and services, would slow revenue growth and have a
material adverse effect on our business and financial condition.
We Are Highly Dependent Upon our Information Technology
Systems and the Inability to Enhance our Systems or a Security
Breach or Disaster Could Have an Adverse Impact on our
Financial Results and Operations.
The day-to-day operations of our businesses are highly dependent
on their information technology systems. An inability to enhance
information technology systems to accommodate additional cus-
tomer growth and support new products and services could have an
adverse impact on our ability to acquire new subscribers, manage
subscriber churn, produce accurate and timely subscriber invoices,
generate revenue growth and manage operating expenses, all of
which could adversely impact our financial results and position.
In addition, we use industry standard network and information
technology security, survivability and disaster recovery practices.
A portion of our employees and critical elements of the network
infrastructure and information technology systems are located at
the corporate offices in Toronto, Ontario, and Brampton, Ontario,
as well as an operations facility in Markham, Ontario. In the event
that we cannot access these facilities, as a result of a natural or
manmade disaster or otherwise, operations may be significantly
affected and may result in a condition that is beyond the scope of
our ability to recover without significant service interruption and
commensurate revenue and customer loss.
62
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
We Are Subject to General Economic Conditions.
Our businesses are affected by general economic conditions, con-
sumer confidence and spending. A recession or decline in economic
activity or economic uncertainty, which is currently occurring glob-
ally, has eroded consumer confidence and may materially reduce
discretionary consumer spending. Any reduction in discretionary
spending by consumers or weak economic conditions may materially
negatively affect us through decreased demand for our products
and services including decreased advertising, decreased revenue
and profitability, higher churn and higher bad debt expense.
The current economic conditions may also have an impact on the
pension plans of the Company as there is no assurance that the
plans will be able to earn the assumed rate of return. As well, mar-
ket driven changes may result in changes in the discount rates and
other variables which would result in the Company being required
to make contributions in the future that differ significantly from
the current contributions and assumptions incorporated into the
actuarial valuation process.
Network Failures Could Reduce Revenue and Impact Customer
Service.
The failure of the networks or a component of the networks would,
in some circumstances, result in an indefinite loss of service for our
customers and could adversely impact our financial results and
position. In addition, we rely on business partners to carry certain
of our customers’ traffic. The failure of one of these carriers might
also cause an interruption in service for our customers that would
last until we could reroute the traffic to an alternative carrier.
We Are and Will Continue to Be Involved in Litigation.
In August, 2008, a proceeding was commenced in Ontario pursu-
ant to that province’s Class Proceedings Act, 1992 against Cable
and other providers of communications services in Canada. The
proceedings involve allegations of, among other things, false,
misleading and deceptive advertising relating to charges for long-
distance telephone usage. The plaintiffs are seeking $20 million in
general damages and punitive damages of $5 million. The plaintiffs
intend to seek an order certifying the proceedings as a class action.
Any potential liability is not yet determinable.
In June, 2008, a proceeding was commenced in Saskatchewan
under that province’s Class Actions Act against providers of wire-
less communications services in Canada. The proceeding involves
allegations of, among other things, breach of contract, misrepre-
sentation and false advertising in relation to the 911 fee charged
by us and the other wireless communication providers in Canada.
The Plaintiffs are seeking unquantified damages and restitution.
The Plaintiffs intend to seek an order certifying the proceeding as a
national class action in Saskatchewan. Any potential liability is not
yet determinable.
In August 2004, a proceeding under the Class Actions Act
(Saskatchewan) was brought against providers of wireless commu-
nications in Canada. Since that time, similar proposed class actions
have also been commenced in Newfoundland and Labrador, New
Brunswick, Nova Scotia, Québec, Ontario, Manitoba, Alberta and
British Columbia. The proceeding involves allegations by wireless
customers of, among other things, breach of contract, misrepre-
sentation, false advertising and unjust enrichment with respect to
the system access fee charged by Wireless to some of its customers.
The plaintiffs seek unquantified damages from the defendants.
Wireless believes it has a good defence to the allegations. The
plaintiffs applied for an order certifying a national class action in
Saskatchewan. In September 2007, the Saskatchewan Court granted
the plaintiffs’ application to have the proceeding certified as a class
action. We are applying for leave to appeal this decision to the
Saskatchewan Court of Appeal. In February 2008, the Saskatchewan
Court granted our application to amend the certification order so
as to exclude from the class of plaintiffs any customer bound by
an arbitration clause with Wireless or Fido. We have not recorded
a liability for this contingency since the likelihood and amount of
any potential loss cannot be reasonably estimated. If the ultimate
resolution of this action differs from our assessment and assump-
tions, a material adjustment to our financial position and results
of operations could result. In January 2009, a hearing took place
before the Saskatchewan Court on the issue of whether this pro-
ceeding should establish a national “opt-out” class rather than
an “opt-in” class. If certified as a national opt-out class, affected
customers outside Saskatchewan would have to take specific steps
in order to not participate in the proceeding and if certified as a
national opt-in class, affected customers outside Saskatchewan
would have to take specific steps to participate. We are awaiting a
decision from the Court.
In April 2004, a proceeding was brought against Fido and other
Canadian wireless carriers claiming damages totalling $160 million,
breach of contract, breach of confidence, breach of fiduciary duty
and, as an alternative to the damages claims, an order for specific
performance of a conditional agreement relating to the use of
38 MHz of MCS Spectrum. The plaintiff has also brought a proceeding
against Inukshuk Wireless Partnership, our 50% owned joint ven-
ture asserting a claim against the MCS Spectrum licences that were
transferred from Fido to Inukshuk. Inukshuk brought a motion to
have the separate action against it dismissed. In May, 2008, the
Court dismissed the separate action brought against Inukshuk. The
appeal of this decision was heard in January, 2009. We are await-
ing a decision from the Court. The proceeding against Fido is at an
early stage. We believe we have good defences to the claim and no
amounts have been provided in the accounts.
We believe that we have adequately provided for income taxes
based on all of the information that is currently available. The calcu-
lation of income taxes in many cases, however, requires significant
judgment in interpreting tax rules and regulations. Our tax filings
are subject to audits which would materially change the amount of
current and future income tax assets and liabilities and could, in cer-
tain circumstances, result in assessment of interest and penalties.
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
63
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
There exist certain other claims and potential claims against us,
none of which is expected to have a material adverse effect on our
consolidated financial position.
Tariff Increases Could Adversely Affect Results of Operations.
Copyright liability pressures continue to affect our services. If fees
were to increase, such increases could adversely affect our results
of operations.
and broadcasting service providers. Among other things, the policy
requires that antenna proponents must consider the use of existing
antenna structures before proposing new structures and owners of
existing systems must respond to sharing requests. Antenna pro-
ponents must also undertake public notification using defined
processes and must address local requirements and concerns. Certain
types of antenna installations are excluded from the requirement to
consult with local authorities and the public.
WIRELESS R ISkS AND U NCERTAINTIES
The Spectrum Auction Could Increase Competition.
Industry Canada’s auction for AWS spectrum concluded on July
21, 2008. The results of this auction could create additional com-
petition for Wireless. See the section entitled “Competition in our
Businesses” for further details.
There is no Guarantee that Wireless’ Service Revenue Will
Exceed Increased Handset Subsidies.
Wireless’ business model, as is generally the case for other North
American wireless carriers, is substantially based on subsidizing the
cost of the handset to the customer to reduce the barrier to entry,
while in return requiring a term commitment from the customer.
For certain handsets and smartphone devices, Wireless will commit
with the supplier to a minimum subsidy. Wireless’ business could
be materially adversely affected if by virtue of law or regulation or
negative customer behaviour, Wireless was unable to require term
commitments or early cancellation fees from its customers or did
not receive the service revenues that it anticipated from the cus-
tomer commitment.
Wireless Technologies.
On October 10, 2008, Bell Canada and TELUS each announced that
they jointly plan to overlay their Code Division Multiple Access/
Evolution Data Optimized (“CDMA/EVDO”) based wireless net-
works with HSPA technology targeting service availability in early
2010. This is expected to enable these companies access to a wider
selection of wireless devices, and to compete for HSPA roaming rev-
enues which are expected to grow over time as HSPA becomes more
widely deployed around the world, both of which would increase
competition at Wireless.
Changes in Technology Could Increase Competition.
Wireless is presently the only carrier in Canada operating on the
world standard GSM/GPRS/EDGE/HSPA technology. As a result,
Wireless is able to offer its customers the ability to roam in other
countries using a variety of handsets, and is effectively the exclusive
provider of wireless services to visitors to Canada from many other
countries. As described above Bell Canada and TELUS are beginning
to deploy this technology and this could reduce Wireless’ market
share or revenue. Future technology developments may similarly
increase competition.
The National Wireless Tower Policy Could Increase Wireless’
Costs or Delay the Expansion of Wireless’ Networks.
On June 28, 2007, Industry Canada released a new Tower Policy
(CPC-2-0-03). On June 28, 2007, Industry Canada released a new
antenna siting policy that took effect on January 1, 2008. The new
policy affects all parties that plan to install or modify an antenna
system, including Personal Communications Services (“PCS”), cellular
Foreign Ownership Changes Could Increase Competition.
Wireless could face increased competition if there is a removal or
relaxation of the limits on foreign ownership and control of wire-
less licences. Legislative action to remove or relax these limits
could result in foreign telecommunication companies entering the
Canadian wireless communications market, through the acquisition
of either wireless licences or of a holder of wireless licences. The
entry into the market of such companies with significantly greater
capital resources than Wireless could reduce Wireless’ market share
and cause Wireless’ revenues to decrease.
Wireless is Dependent on Certain key Infrastructure and
Handset Vendors, Which Could Impact the Quality of Wireless’
Services or Impede Network Development and Expansion.
Wireless has relationships with a small number of essential net-
work infrastructure and handset vendors, over which it has no
operational or financial control and only limited influence in how
the vendors conduct their businesses. The failure of one of our
network infrastructure suppliers could delay programs to provide
additional network capacity or new capabilities and services across
the business. Handsets and network infrastructure suppliers may,
among other things, extend delivery times, raise prices and limit
supply due to their own shortages and business requirements. If
these suppliers fail to deliver products and services on a timely basis
or fail to develop and deliver handsets that satisfy Wireless’ cus-
tomers’ demands, this could have a negative impact on Wireless’
business, financial condition and results of operations. Similarly,
interruptions in the supply of equipment for our networks could
impact the quality of Wireless’ service or impede network develop-
ment and expansion.
Long-Distance Equal Access Could Increase Competition.
The CRTC’s three-year Work Plan indicates their intent to review
the issue of Long-Distance Equal Access for Wireless Carriers. If
required, this may introduce additional competition in the provision
of wireless long-distance, as well as impact Wireless’ long-distance
revenues.
Restrictions on the Use of Wireless Handsets While Driving
May Reduce Subscriber Usage.
Certain provincial government bodies have introduced legislation to
restrict or prohibit wireless handset usage while driving (hands-free
usage would be permitted). Legislation banning the use of hand-
held phones while driving, while permitting the use of hands-free
devices, has been implemented in Newfoundland and Labrador,
Nova Scotia and Québec. Legislation has been proposed, but not yet
passed in Ontario and Manitoba. Legislation has been proposed in
other jurisdictions to restrict or prohibit the use of wireless hand-
sets while driving motor vehicles. Some studies have indicated that
certain aspects of using wireless handsets while driving may impair
64
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
the attention of drivers in various circumstances, making accidents
more likely. Laws prohibiting or restricting the use of wireless hand-
sets while driving could have the effect of reducing subscriber
usage, which could cause an adverse effect on Wireless’ business.
Additionally, concerns over the use of wireless handsets while driving
could lead to litigation relating to accidents, deaths or bodily injuries,
which could also have an adverse effect on Wireless’ business.
Concerns About Radio Frequency Emissions May Adversely
Affect Our Business.
Occasionally, media and other reports have highlighted alleged
links between radio frequency emissions from wireless handsets
and various health concerns, including cancer, and interference
with various medical devices, including hearing aids and pacemak-
ers. While there are no definitive reports or studies stating that such
health issues are directly attributable to radio frequency emissions,
concerns over radio frequency emissions may discourage the use of
wireless handsets or expose us to potential litigation. It is also pos-
sible that future regulatory actions may result in the imposition of
more restrictive standards on radio frequency emissions from low
powered devices, such as wireless handsets. Wireless is unable to
predict the nature or extent of any such potential restrictions.
C ABLE R ISkS AND U NCERTAINTIES
Changes in Technology Could Increase Competition.
As improvements are made to the quality of streaming video over
the Internet, the availability of television shows and movies on the
Internet increases competition to Canadian cable television systems.
If changes in technology are made to any alternative Canadian
multi-channel broadcasting distribution system, competition with
our cable services may increase. In addition, if improvements in
technology are made with respect to wireless Internet, it could
increasingly become a substitute for the traditional high-speed
Internet service.
Failure to Obtain Access to Support Structures and Municipal
Rights of Way Could Increase Cable’s Costs and Adversely
Affect Our Business.
Cable requires access to support structures and municipal rights of
way in order to deploy facilities. Where access to municipal rights
of way cannot be secured, Cable may apply to the CRTC to obtain
a right of access under the Telecommunications Act. However, the
Supreme Court of Canada ruled in 2003 that the CRTC does not
have the jurisdiction to establish the terms and conditions of access
to the poles of hydroelectric companies. As a result of this decision,
Cable’s access to the poles of hydroelectric companies are obtained
pursuant to orders from the Ontario Energy Board and the New
Brunswick Public Utilities Board.
If Cable is Unable to Develop or Acquire Advanced
Encryption Technology to Prevent Unauthorized Access to Its
Programming, Cable Could Experience a Decline in Revenues.
Cable utilizes encryption technology to protect its cable signals from
unauthorized access and to control programming access based on
subscription packages. There can be no assurance that Cable will be
able to effectively prevent unauthorized decoding of signals in the
future. If Cable is unable to control cable access with our encryp-
tion technology, Cable’s subscription levels for digital programming
including VOD and SVOD, as well as Rogers Retail rentals, may
decline, which could result in a decline in Cable’s revenues.
Increasing Programming Costs Could Adversely Affect Cable’s
Results of Operations.
Cable’s single most significant purchasing commitment is the total
annual cost of acquiring programming. Programming costs have
increased significantly in recent years, particularly in connection
with the recent growth in subscriptions to digital specialty chan-
nels. Increasing programming costs within the industry could
adversely affect Cable’s operating results if Cable is unable to pass
such programming costs on to its subscribers.
Cable Telephony is Highly Dependent on Facilities and
Services of the ILECs.
Cable’s out-of-territory telephony business is highly-dependent on
the availability of unbundled facilities acquired from incumbent
telecom operators, pursuant to CRTC rules. Changes to these rules
could severely affect the cost of operating these businesses.
MEDIA RISkS AND UNCERTAINTIES
Changes in Regulatory Policies May Adversely Affect Media’s
Business.
In December 2006, the CRTC released its Commercial Radio Policy
2006. While Canadian talent development contributions made by
all radio stations will be increasing significantly, minimum Canadian
content levels will remain at 35%. This will provide radio operators
with the flexibility they need to program their stations in competi-
tion with an increasing array of unregulated content alternatives
and distribution platforms.
The CRTC conducted a review of the specialty and pay television
sector, as well as the regulations affecting all distributors (the
Broadcasting Distribution Regulations). This review focused on a
number of different issues, including wholesale fees, dispute reso-
lution and packaging and linkage requirements. This broad-based
review impacts all specialty services, including Rogers Sportsnet,
The Biography Channel Canada, OLN and G4TechTV Canada. See
the section entitled “Review of Broadcasting Regulations including
Fee-for-Carriage and Distant Signal Fees” above. The ability to col-
lect fees impacts all broadcasters, including OMNI Television and
Citytv.
Pressures Regarding Channel Placement Could Negatively
Impact the Tier Status of Certain of Media’s Channels.
Unfavourable channel placement could negatively affect the results
of The Shopping Channel, Sportsnet, G4TechTV, The Biography
Channel Canada and OLN.
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
65
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
A Loss in Media’s Leadership Position in Radio, Television or
Magazine Readership Could Adversely Impact Media’s Sales
Volumes and Advertising Rates.
It is well established that advertising dollars migrate to media prop-
erties that are leaders in their respective markets and categories
when advertising budgets are tightened. Although most of Media’s
radio, television and magazine properties are currently leaders
in their respective markets, such leadership may not continue in
the future. Advertisers base a substantial part of their purchasing
decisions on statistics such as ratings and readership generated by
industry associations and agencies. If Media’s radio and television
ratings or magazine readership levels were to decrease substan-
tially, Media’s advertising sales volumes and the rates which it
charges advertisers could be adversely affected.
Subscriber Counts
We determine the number of subscribers to our services based on
active subscribers. A wireless subscriber is represented by each
identifiable telephone number. A cable subscriber is represented
by a dwelling unit. In the case of multiple units in one dwelling,
such as an apartment building, each tenant with cable service,
whether invoiced individually or having services included in his or
her rent, is counted as one subscriber. Commercial or institutional
units, such as hospitals or hotels, are each considered to be one
subscriber. When subscribers are deactivated, either voluntarily or
involuntarily for non-payment, they are considered to be deactiva-
tions in the period the services are discontinued. Wireless prepaid
subscribers are considered active for a period of 180 days from the
date of their last revenue-generating usage.
Changes in Technology Could Increase Competition.
The deployment of PVRs could influence Media’s capability to gener-
ate television advertising revenues as viewers are provided with the
opportunity to ignore advertising aired on the television networks.
The emergence of subscriber-based satellite and digital radio prod-
ucts could change radio audience listening habits and negatively
impact the results of Media’s radio stations. Certain audiences are
also migrating to the Internet as more video becomes available. In
addition, as mandated by the CRTC, Canadian television signals are
migrating to a strictly digital platform by August 31, 2011, which
could impact Media’s ability to reach certain audiences.
An Increase in Paper Prices, Printing Costs or Postage Could
Adversely Affect Media’s Results of Operations.
A significant portion of Publishing’s operating expenses consists of
paper, printing and postage expenses. Paper is Publishing’s single
largest raw material expense, representing approximately 7% of
Publishing’s operating expenses in 2008. Publishing depends upon
outside suppliers for all of its paper supplies, holds relatively small
quantities of paper in stock itself, and is unable to control paper
prices, which can fluctuate considerably. Moreover, Publishing
is generally unable to pass paper cost increases on to customers.
Printing costs represented approximately 13% of Publishing’s oper-
ating expenses in 2008. Publishing relies on third parties for all of
its printing services. In addition, Publishing relies on the Canadian
Postal Service to distribute a large percentage of its publications.
Any disruption in printing or postage services could have a material
impact on Media’s results of operations or financial condition. A
material increase in paper prices, printing costs or postage expenses
to Publishing could have a material adverse effect on Media’s busi-
ness, results of operations or financial condition.
5. ACCOUNTING POLICIES AND NON-GAAP MEASURES
kEY P ERFORMANCE I NDIC ATORS AND N ON - GA AP MEASURES
We measure the success of our strategies using a number of key
performance indicators, which are outlined below. The following
key performance indicators are not measurements in accordance
with Canadian or U.S. GAAP and should not be considered as an
alternative to net income or any other measure of performance
under Canadian or U.S. GAAP.
We report wireless subscribers in two categories: postpaid and
prepaid. Postpaid includes voice-only and data-only subscribers,
as well as subscribers with service plans integrating both voice and
data, while prepaid includes voice-only subscribers.
Internet, Rogers Home Phone and RBS subscribers include only
those subscribers with service installed, operating and on billing
and excludes those subscribers who have subscribed to the service
but for whom installation of the service was still pending.
Subscriber Churn
Subscriber churn is calculated on a monthly basis. For any partic-
ular month, subscriber churn for Wireless represents the number
of subscribers deactivating in the month divided by the aggregate
number of subscribers at the beginning of the month. When used
or reported for a period greater than one month, subscriber churn
represents the monthly average of the subscriber churn for the
period.
Average Revenue Per User
ARPU is calculated on a monthly basis. For any particular month,
ARPU represents monthly revenue divided by the average number
of subscribers during the month. In the case of Wireless, ARPU rep-
resents monthly network revenue divided by the average number
of subscribers during the month. ARPU, when used in connection
with a particular type of subscriber, represents monthly revenue
generated from those subscribers divided by the average number
of those subscribers during the month. When used or reported for
a period greater than one month, ARPU represents the monthly
average of the ARPU calculations for the period. We believe ARPU
helps indicate whether we have been successful in attracting and
retaining higher value subscribers. Refer to the section entitled
“Supplementary Information: Non-GAAP Calculations” for further
details on this Wireless and Cable calculation.
Operating Expenses
Operating expenses are segregated into three categories for assess-
ing business performance:
• Cost of sales, which is comprised of wireless equipment costs,
Rogers Retail merchandise and depreciation of Rogers Retail
rental assets, as well as cost of goods sold by The Shopping
Channel;
66
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
• Sales and marketing expenses, which represent the costs to
acquire new subscribers (other than those related to equipment),
such as advertising, commissions paid to third parties for new
activations, remuneration and benefits to sales and marketing
employees, as well as direct overheads related to these activities
and the costs of operating the Rogers Retail store locations; and
• Operating, general and administrative expenses, which include
all other expenses incurred to operate the business on a day-to-
day basis and service existing subscriber relationships, including
retention costs, inter-carrier payments to roaming partners and
long-distance carriers, network maintenance costs, program-
ming related costs, the CRTC contribution levy, Internet and
e-mail services and printing and production cost.
In the wireless and cable industries in Canada, the demand for ser-
vices continues to grow and the variable costs, such as commissions
paid for subscriber activations, as well as the fixed costs of acquir-
ing new subscribers, are significant. Fluctuations in the number of
activations of new subscribers from period-to-period and the sea-
sonal nature of both wireless and cable subscriber additions result
in fluctuations in sales and marketing expenses and accordingly, in
the overall level of operating expenses. In our Media business, sales
and marketing expenses may be significant to promote publishing,
radio and television properties, which in turn attract advertisers,
viewers, listeners and readers.
Sales and Marketing Costs (or Cost of Acquisition)
Per Subscriber
Sales and marketing costs per subscriber, which is also often referred
to in the Wireless industry as cost of acquisition per subscriber
(“COA”), “subscriber acquisition cost”, or “cost per gross addition”,
is calculated by dividing total sales and marketing expenditures,
plus costs related to equipment provided to new subscribers for
the period, by the total number of gross subscriber activations dur-
ing the period. Subscriber activations include postpaid and prepaid
voice and data activations and one-way messaging activations.
COA, as it relates to a particular activation, can vary depending
on the level of ARPU and term of a subscriber’s contract. Refer
to the section entitled “Supplementary Information: Non-GAAP
Calculations” for further details on the calculation.
The wireless communications industry in Canada continues to grow
and the costs of acquiring new subscribers are significant. Because
a substantial portion of subscriber activation costs are variable in
nature, such as commissions paid for each new activation, and due to
fluctuations in the number of activations of new subscribers from peri-
od-to-period and the seasonal nature of these subscriber additions,
we experience material fluctuations in sales and marketing expenses
and, accordingly, in the overall level of operating expenses.
Operating Expense per Subscriber
Operating expense per subscriber, expressed as a monthly average,
is calculated by dividing total operating, general and administrative
expenses, plus costs related to equipment provided to existing sub-
scribers, by the average number of subscribers during the period.
Operating expense per subscriber is tracked by Wireless as a mea-
sure of our ability to leverage our operating cost structure across
a growing subscriber base, and we believe that it is an impor-
tant measure of our ability to achieve the benefits of scale as we
increase the size of our business. Refer to the section entitled
“Supplementary Information: Non-GAAP Calculations” for further
details on this Wireless calculation.
Operating Profit and Operating Profit Margin
We define operating profit as net income before depreciation and
amortization, interest expense, income taxes and non-operating
items, which include impairment losses on goodwill, intangible
assets and other long-term assets, foreign exchange gains (losses),
loss on repayment of long-term debt, change in fair value of deriv-
ative instruments, and other income. Operating profit is a standard
measure used in the communications industry to assist in under-
standing and comparing operating results and is often referred to
by our peers and competitors as EBITDA (earnings before interest,
taxes, depreciation and amortization) or OIBDA (operating income
before depreciation and amortization). We believe this is an impor-
tant measure as it allows us to assess our ongoing businesses
without the impact of depreciation or amortization expenses as
well as non-operating factors. It is intended to indicate our ability
to incur or service debt, invest in PP&E and allows us to compare
us to our peers and competitors who may have different capital or
organizational structures. This measure is not a defined term under
Canadian GAAP or U.S. GAAP.
We calculate operating profit margin by dividing operating profit
by total revenue, except in the case of Wireless. For Wireless,
operating profit margin is calculated by dividing operating profit
by network revenue. Network revenue is used in the calculation,
instead of total revenue, because network revenue better reflects
Wireless’ core business activity of providing wireless services. Refer
to the section entitled “Supplementary Information: Non-GAAP
Calculations” for further details on this Wireless, Cable and Media
calculation.
Adjusted Operating Profit, Adjusted Operating Profit Margin,
Adjusted Net Income, and Adjusted Basic and Diluted Net
Income Per Share
Beginning in 2007, we have included certain non-GAAP measures
that we believe provide useful information to management and
readers of this MD&A in measuring our financial performance.
These measures, which include adjusted operating profit, adjusted
operating profit margin, adjusted net income and adjusted basic
and diluted net income per share, do not have a standardized mean-
ing under GAAP and, therefore, may not be comparable to similarly
titled measures presented by other publicly traded companies, nor
should they be construed as an alternative to other financial mea-
sures determined in accordance with GAAP. We define adjusted
operating profit as operating profit less: (i) the impact of the one-
time non-cash charge resulting from the introduction of a cash
settlement feature related to employee stock options; (ii) stock-
based compensation expense; (iii) integration and restructuring
expenses; (iv) the impact of a one-time charge resulting from the
renegotiation of an Internet-related services agreement; and (v) an
adjustment for Canadian Radio-television and Telecommunications
Commission (“CRTC”) Part II fees related to prior periods. In addi-
tion, adjusted net income and net income per share excludes debt
issuance costs, losses on repayment of long-term debt, impairment
losses on goodwill, intangible assets and other long-term assets,
and the related income tax impacts of the above items.
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
67
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
We believe that these non-GAAP financial measures provide for a
more effective analysis of our operating performance. In addition,
the items mentioned above could potentially distort the analysis
of trends due to the fact that they are either volatile or unusual or
non-recurring, can vary widely from company-to-company and can
impair comparability. The exclusion of these items does not mean
that they are unusual, infrequent or non-recurring.
We use these non-GAAP measures internally to make strategic deci-
sions, forecast future results and evaluate our performance from
period-to-period and compared to forecasts on a consistent basis.
We believe that these measures present trends that are useful to
investors and analysts in enabling them to assess the underlying
changes in our business over time.
Adjusted operating profit and adjusted operating profit margins,
which are reviewed regularly by management and our Board of
Directors, are also useful in assessing our performance and in mak-
ing decisions regarding the ongoing operations of the business and
the ability to generate cash flows.
These non-GAAP measures should be viewed as a supplement to,
and not a substitute for, our results of operations reported under
Canadian and U.S. GAAP. A reconciliation of these non-GAAP
financial measures to operating profit, net income and net income
per share is included in the section entitled “Supplementary
Information: Non-GAAP Calculations”.
Additions to PP&E
Additions to PP&E include those costs associated with acquiring and
placing our PP&E into service. Because the communications busi-
ness requires extensive and continual investment in equipment,
including investment in new technologies and expansion of geo-
graphical reach and capacity, additions to PP&E are significant and
management focuses continually on the planning, funding and
management of these expenditures. We focus more on managing
additions to PP&E than we do on managing depreciation and amor-
tization expense because additions to PP&E have a direct impact on
our cash flow, whereas depreciation and amortization are non-cash
accounting measures required under Canadian and U.S. GAAP.
The additions to PP&E before related changes to non-cash working
capital represent PP&E that we actually took title to in the period.
Accordingly, for purposes of comparing our PP&E outlays, we believe
that additions to PP&E before related changes to non-cash working
capital best reflect our cost of PP&E in a period, and provide a more
accurate determination for period-to-period comparisons.
CRITIC AL ACCOUNTING POLICIES
This MD&A has been prepared with reference to our 2008 Audited
Consolidated Financial Statements and Notes thereto, which have
been prepared in accordance with Canadian GAAP. The Audit
Committee of our Board reviews our accounting policies, reviews
all quarterly and annual filings, and recommends approval of our
annual financial statements to our Board. For a detailed discus-
sion of our accounting policies, see Note 2 to the 2008 Audited
Consolidated Financial Statements. In addition, a discussion of new
accounting standards adopted by us and critical accounting esti-
mates are discussed in the sections “New Accounting Standards”
and “Critical Accounting Estimates”, respectively.
68
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
Revenue Recognition
Revenue is categorized into the following types, the majority of
which are recurring in nature on a monthly basis from ongoing
relationships, contractual or otherwise, with our subscribers:
• Monthly subscriber fees in connection with wireless and wireline
services, cable, telephony, Internet services, rental of equip-
ment, network services and media subscriptions are recorded as
revenue on a pro rata basis as the service is provided;
• Revenue from airtime, roaming, long-distance and optional
services, pay-per-use services, video rentals and other sales of
products are recorded as revenue as the services or products
are delivered;
• Revenue from the sale of wireless and cable equipment is
recorded when the equipment is delivered and accepted by
the independent dealer or subscriber in the case of direct
sales. Equipment subsidies related to new and existing sub-
scribers are recorded as a reduction of equipment revenues;
• Installation fees and activation fees charged to subscribers
do not meet the criteria as a separate unit of accounting.
As a result, in Wireless, these fees are recorded as part of
equipment revenue and, in the case of Cable, are deferred
and amortized over the related service period. The related
service period for Cable ranges from 26 to 48 months, based
on subscriber disconnects, transfers of service and moves.
Incremental direct installation costs related to re-connects
are deferred to the extent of deferred installation fees and
amortized over the same period as these related installation
fees. New connect installation costs are capitalized to PP&E
and amortized over the useful life of the related assets;
• Advertising revenue is recorded in the period the advertis-
ing airs on our radio or television stations and the period in
which advertising is featured in our publications;
• Monthly subscription revenues received by television sta-
tions for subscriptions from cable and satellite providers are
recorded in the month in which they are earned;
• Blue Jays’ revenue from home game admission and conces-
sions is recognized as the related games are played during
the baseball regular season. Revenue from radio and televi-
sion agreements is recorded at the time the related games
are aired. The Blue Jays also receive revenue from the Major
League Baseball Revenue Sharing Agreement, which distrib-
utes funds to and from member clubs, based on each club’s
revenues. This revenue is recognized in the season in which it
is earned, when the amount is estimable and collectibility is
reasonably assured; and
• Discounts provided to customers related to combined pur-
chases of Wireless, Cable, and Media products and services
are charged directly to the revenue for the products and ser-
vices to which they relate.
We offer certain products and services as part of multiple deliver-
able arrangements. We divide multiple deliverable arrangements
into separate units of accounting. Components of multiple deliv-
erable arrangements are separately accounted for provided the
delivered elements have stand-alone value to the customers and
the fair value of any undelivered elements can be objectively
and reliably determined. Consideration for these units is mea-
sured and allocated amongst the accounting units based upon
their fair values and our relevant revenue recognition policies are
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
applied to them. We recognize revenue once persuasive evidence of
an arrangement exists, delivery has occurred or services have been
rendered, fees are fixed and determinable and collectibility is rea-
sonably assured.
Unearned revenue includes subscriber deposits, installation fees
and amounts received from subscribers related to services and sub-
scriptions to be provided in future periods.
Subscriber Acquisition and Retention Costs
We operate within a highly-competitive industry and generally
incur significant costs to attract new subscribers and retain exist-
ing subscribers. All sales and marketing expenditures related to
subscriber acquisitions, retention and contract renewals, such as
commissions, and the cost associated with the sale of customer
premises equipment, are expensed as incurred.
A large percentage of the subscriber acquisition and retention
costs, such as equipment subsidies and commissions, are variable in
nature and directly related to the acquisition or renewal of a sub-
scriber. In addition, subscriber acquisition and retention costs on a
per subscriber acquired basis fluctuate based on the success of pro-
motional activity and the seasonality of the business. Accordingly,
if we experience significant growth in subscriber activations or
renewals during a period, expenses for that period will increase.
Capitalization of Direct Labour and Overhead
During construction of new assets, direct costs plus a portion of
applicable overhead costs are capitalized. Repairs and maintenance
expenditures are charged to operating expenses as incurred.
CRITIC AL ACCOUNTING ESTIMATES
This MD&A has been prepared with reference to our 2008 Audited
Consolidated Financial Statements and Notes thereto, which have
been prepared in accordance with Canadian GAAP. The prepara-
tion of these financial statements requires management to make
estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses, and the related disclosure
of contingent assets and liabilities. These estimates are based on
management’s historical experience and various other assumptions
that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the
reported amounts of assets, liabilities, revenue and expenses that
are not readily apparent from other sources. Actual results could
differ from those estimates. We believe that the accounting esti-
mates discussed below are critical to our business operations and
an understanding of our results of operations or may involve addi-
tional management judgment due to the sensitivity of the methods
and assumptions necessary in determining the related asset, liabil-
ity, revenue and expense amounts.
Purchase Price Allocations
The allocations of the purchase prices for our acquisitions involves
considerable judgment in determining the fair values assigned
to the tangible and intangible assets acquired and the liabilities
assumed on acquisition. Among other things, the determination of
these fair values involved the use of discounted cash flow analyses,
estimated future margins, estimated future subscribers, estimated
future royalty rates, the use of information available in the finan-
cial markets and estimates as to costs to close duplicate facilities
and buy out certain contracts. Refer to Note 4 of the 2008 Audited
Consolidated Financial Statements for acquisitions made during
2008. Should actual rates, cash flows, costs and other items differ
from our estimates, this may necessitate revisions to the carrying
value of the related assets and liabilities acquired, including revi-
sions that may impact net income in future periods.
Useful Lives of PP&E
We depreciate the cost of PP&E over their respective estimated
useful lives. These estimates of useful lives involve considerable
judgment. In determining the estimates of these useful lives, we
take into account industry trends and company-specific factors,
including changing technologies and expectations for the in-ser-
vice period of certain assets. On an annual basis, we re-assess our
existing estimates of useful lives to ensure they match the antici-
pated life of the technology from a revenue-producing perspective.
If technological change happens more quickly or in a different way
than anticipated, we might have to reduce the estimated life of
PP&E, which could result in a higher depreciation expense in future
periods or an impairment charge to write down the value of PP&E.
Capitalization of Direct Labour and Overhead
Certain direct labour and indirect costs associated with the acqui-
sition, construction, development or betterment of our networks
are capitalized to PP&E. The capitalized amounts are calculated
based on estimated costs of projects that are capital in nature, and
are generally based on a rate per hour. Although interest costs are
permitted to be capitalized during construction under Canadian
GAAP, it is our policy not to capitalize interest.
Accrued Liabilities
The preparation of financial statements requires management to
make estimates and assumptions that affect the reported amounts
of accrued liabilities at the date of the financial statements and the
reported amounts expensed during the year. Actual results could
differ from those estimates.
Amortization of Intangible Assets
We amortize the cost of finite-lived intangible assets over their
estimated useful lives. These estimates of useful lives involve con-
siderable judgment. During 2004 and 2005, the acquisitions of Fido,
Call-Net, the minority interests in Wireless and Sportsnet, together
with the consolidation of the Blue Jays, as well as the acquisitions
of Futureway and Citytv in 2007, and Aurora Cable and channel m
in 2008, resulted in significant increases to our intangible asset bal-
ances. Judgement is also involved in determining that spectrum
and broadcast licences have indefinite lives, and are therefore not
amortized.
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
69
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The determination of the estimated useful lives of brand names
involves historical experience, marketing considerations and the
nature of the industries in which we operate. The useful lives of
subscriber bases are based on the historical churn rates of the
underlying subscribers and judgments as to the applicability of
these rates going forward. The useful lives of roaming agreements
are based on estimates of the useful lives of the related network
equipment. The useful lives of wholesale agreements and dealer
networks are based on the underlying contractual lives. The use-
ful life of the marketing agreement is based on historical customer
lives. The determination of the estimated useful lives of intangible
assets impacts amortization expense in the current period as well
as future periods. The impact on net income on a full-year basis
of changing the useful lives of the finite-lived assets by one year is
shown in the chart below.
Impact of Changes in Estimated Useful Lives
(In millions of dollars)
Brand names
Rogers
Fido
Citytv
Subscriber base
Rogers
Cable
Roaming agreements
Dealer network
Rogers
Fido
Marketing agreement
Impairment of Goodwill, Indefinite -Lived Intangible Assets
and Long-Lived Assets
Indefinite-lived intangible assets, including goodwill and spec-
trum/broadcast licences, as well as long-lived assets, including PP&E
and other intangible assets, are assessed for impairment on at
least an annual basis or more often if events or circumstances war-
rant. These impairment tests involve the use of both undiscounted
and discounted net cash flow analyses to assess the recoverabil-
ity of the carrying value of these assets and the fair value of both
indefinite-lived and long-lived assets, if applicable. These analyses
involve estimates of future cash flows, estimated periods of use
and applicable discount rates. During 2008, we recorded an impair-
ment charge of $294 million relating to the conventional television
business in the Media operating segment resulting from the chal-
lenging economic conditions and weakening industry expectations
in the conventional television business and the decline in advertis-
ing revenues.
Income Tax Estimates
We use judgment in the estimation of income taxes and future
income tax assets and liabilities. In the preparation of our
Consolidated Financial Statements, we are required to estimate
income taxes in each of the jurisdictions in which we operate.
This involves estimating actual current tax expense, together with
assessing temporary differences that result from differing treat-
ments in items for accounting purposes versus tax purposes, and
in estimating the recoverability of the benefits arising from tax
loss carryforwards. We are required to assess whether it is more
likely than not that future income tax assets will be realized prior
to the expiration of the related tax loss carryforwards. Judgment
is required to determine if a valuation allowance is needed against
either all or a portion of our future income tax assets. Various
considerations are reflected in this judgment, including future
profitability of related companies, tax planning strategies that are
70
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
Amortization
Period
Increase in Net Income
if Life Increased by 1 year
Decrease in Net Income
if Life Decreased by 1 year
20.0 years
5.0 years
5.0 years
4.7 years
3.0 years
12.0 years
4.0 years
4.0 years
5.0 years
$
$
$
$
$
$
$
$
$
1
3
0
30
2
3
1
1
1
$
$
$
$
$
$
$
$
$
(1)
(5)
(1)
(46)
(3)
(4)
(2)
(1)
(1)
being implemented or could be implemented to recognize the ben-
efits of these tax assets, as well as the expiration of the tax loss
carryforwards. Judgments and estimates made to assess the tax
treatment of items and the need for a valuation allowance impact
the future income tax balances as well as net income through
the current and future income tax provisions. As at December 31,
2008, and as detailed in Note 7 to the 2008 Audited Consolidated
Financial Statements, we have non-capital income tax loss car-
ryforwards of approximately $911 million. Our net future income
tax asset, prior to valuation allowances, totals approximately
$246 million at December 31, 2008 (2007 – $609 million). The
recorded valuation allowance results in a future income tax asset
of $144 million, reflecting that it is more likely than not that certain
income tax assets will be realized.
Credit Spreads and the Impact on Fair Value of Derivatives
Rogers’ Cross-Currency Swaps are recorded using an estimated
credit-adjusted mark-to-market valuation which is determined by
increasing the treasury-related discount rates used to calculate
the risk-free estimated mark-to-market valuation by an estimated
CDS Spread for the relevant term and counterparty for each Cross-
Currency Swap. In the case of Cross-Currency Swaps in an asset
position (i.e., those Cross-Currency Swaps for which the counter-
parties owe Rogers), the CDS Spread for the bank counterparty is
added to the risk-free discount rate to determine the estimated
credit-adjusted value. In the case of Cross-Currency Swaps in a liabil-
ity position (i.e., those Cross-Currency Swaps for which Rogers owes
the counterparties), Rogers’ CDS Spread is added to the risk-free
discount rate. The estimated credit-adjusted values of the Cross-
Currency Swaps are subject to changes in credit spreads of Rogers
and its counterparties. In 2007, we recorded our Cross-Currency
Swaps at the estimated risk-free fair value.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Pension Plans
When accounting for defined benefit pension plans, assumptions
are made in determining the valuation of benefit obligations and
the future performance of plan assets. Delayed recognition of dif-
ferences between actual results and expected or estimated results
is a guiding principle of pension accounting. This principle results
in recognition of changes in benefit obligations and plan perfor-
mance over the working lives of the employees receiving benefits
under the plan. The primary assumptions and estimates include the
discount rate, the expected return on plan assets and the rate of
compensation increase. Changes to these primary assumptions and
estimates would impact pension expense and the deferred pension
asset. The current economic conditions may also have an impact on
Impact of Changes in Pension- Related Assumptions
the pension plan of the Company as there is no assurance that the
plan will be able to earn the assumed rate of return. As well, mar-
ket driven changes may result in changes in the discount rates and
other variables which would result in the Company being required
to make contributions in the future that differ significantly from
the current contributions and assumptions incorporated into the
actuarial valuation process.
The following table illustrates the increase (decrease) in the accrued
benefit obligation and pension expense for changes in these pri-
mary assumptions and estimates:
(In millions of dollars)
Discount rate
Impact of: 1% increase
1% decrease
Rate of compensation increase
Impact of: 0.25% increase
0.25% decrease
Expected rate of return on assets
Impact of: 1% increase
1% decrease
Accrued Benefit Obligation at
End of Fiscal 2008
Pension Expense
Fiscal 2008
$
$
6.75%
(80)
104
3.00%
4
(3)
N/A
N/A
N/A
$
$
5.65%
(9)
11
3.25%
1
(1)
7.00%
6
(6)
Allowance for Doubtful Accounts
A significant portion of our revenue is earned from selling on credit
to individual consumers and business customers. The allowance for
doubtful accounts is calculated by taking into account factors such
as our historical collection and write-off experience, the number
of days the customer is past due and the status of the customer’s
account with respect to whether or not the customer is continuing
to receive service. As a result, fluctuations in the aging of subscriber
accounts will directly impact the reported amount of bad debt
expense. For example, events or circumstances that result in a dete-
rioration in the aging of subscriber accounts will in turn increase
the reported amount of bad debt expense. Conversely, as circum-
stances improve and customer accounts are adjusted and brought
current, the reported bad debt expense will decline.
NEW A CCOUNTING S TANDARDS
Capital disclosures
Effective January 1, 2008, we adopted the new recommendations
of The Canadian Institute of Chartered Accountants’ (“CICA”)
Handbook Section 1535, Capital Disclosures (“CICA 1535”). CICA
1535 requires that an entity disclose information that enables users
of its financial statements to evaluate an entity’s objectives, poli-
cies and processes for managing capital, including disclosures of
any externally imposed capital requirements and the consequences
for non-compliance. These new disclosures are included in Note 21
of the 2008 Audited Consolidated Financial Statements.
Financial instruments
Effective January 1, 2008, we adopted the new recommendations
of CICA Handbook Section 3862, Financial Instruments - Disclosures
(“CICA 3862”), and Handbook Section 3863, Financial Instruments -
Presentation (“CICA 3863”).
CICA 3862 requires entities to provide disclosures in their finan-
cial statements that enable users to evaluate the significance of
financial instruments on the entity’s financial position and its per-
formance and the nature and extent of risks arising from financial
instruments to which the entity is exposed during the period and at
the balance sheet date, and how the entity manages those risks.
CICA 3863 establishes standards for presentation of financial
instruments and non-financial derivatives. It deals with the clas-
sification of financial instruments, from the perspective of the
issuer, between liabilities and equities, the classification of related
interest, dividends, gains and losses, and circumstances in which
financial assets and financial liabilities are offset.
The adoption of these standards did not have any impact on the
classification and measurement of our financial instruments. The
new disclosures pursuant to these new Handbook Sections are
included in Note 15 of the 2008 Audited Consolidated Financial
Statements.
RECENT C ANADIAN ACCOUNTING PRONOUNCEMENTS
Goodwill and Intangible Assets
In 2008, the CICA issued Handbook Section 3064, Goodwill and
Intangible Assets (“CICA 3064”). CICA 3064, which replaces Section
3062, Goodwill and Intangible Assets, and Section 3450, Research
and Development Costs, establishes standards for the recognition,
measurement and disclosure of goodwill and intangible assets.
The provisions relating to the definition and initial recognition of
intangible assets, including internally generated intangible assets,
are equivalent to the corresponding provisions of IFRS IAS 38,
Intangible Assets. This new standard is effective for our Interim and
Annual Consolidated Financial Statements commencing January 1,
2009. We are assessing the impact of the new standard.
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
71
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS” )
In 2006, the Canadian Accounting Standards Board (“AcSB”) pub-
lished a strategic plan that significantly affects financial reporting
requirements for Canadian public companies. The AcSB strategic
plan outlines the convergence of Canadian GAAP with IFRS over an
expected five-year transitional period.
In February 2008, the AcSB confirmed that IFRS will be mandatory
in Canada for profit-oriented publicly accountable entities for fiscal
periods beginning on or after January 1, 2011. Our first annual IFRS
financial statements will be for the year ending December 31, 2011
and will include the comparative period of 2010. Starting in the first
quarter of 2011, we will provide unaudited consolidated interim
financial information in accordance with IFRS including compara-
tive figures for 2010.
The table below illustrates key elements of our conversion plan,
our major milestones and current status. Our conversion plan is
organized in phases over time and by area. We have completed all
activities to date per our detailed project plan and expect to meet
all milestones through to completion of the conversion to IFRS.
We have allocated sufficient resources to our conversion project,
which include certain full-time employees in addition to contribu-
tions by other employees on a part-time or as needed basis. We
have completed the delivery of training to all employees with
responsibilities in the conversion process and our conversion plan
includes training for all other employees who will be impacted by
our conversion to IFRS.
Although we have completed preliminary assessments of account-
ing and reporting differences, impacts on systems and processes
and other areas of the business, we have not yet finalized these
assessments. As we finalize our determination of the significant
impacts on our financial reporting, including on our KPIs, systems
and processes, and other areas of our business, we intend to dis-
close such impacts in our future MD&As.
In the period leading up to the changeover, the AcSB will continue
to issue accounting standards that are converged with IFRS, thus
mitigating the impact of adopting IFRS at the changeover date.
The International Accounting Standards Board (“IASB”) will also
continue to issue new accounting standards during the conversion
period and, as a result, the final impact of IFRS on the Company’s
consolidated financial statements will only be measured once all
the IFRS applicable at the conversion date are known.
MILESTONES
STATUS
Preliminary assessment of accounting
and reporting differences completed.
Selection of IFRS accounting policies
and IFRS 1 elections underway.
Senior management and audit
committee approval for policy
recommendations and IFRS elections
during 2009.
Senior management and audit
committee approval on financial
statement format during 2010.
Final quantification of conversion
effects on 2010 comparative period
by Q1 2011.
Systems, process and internal control
changes implemented and training com-
plete in time for parallel run in 2010.
Testing of internal controls for 2010
comparatives completed by Q1 2011.
Preliminary assessment of required
changes completed.
Analysis of potential design solutions
underway.
Contracts updated/renegotiated by end
of 2010.
Preliminary assessment of impacts on
other areas of the business completed.
Communication at all levels throughout
the conversion process.
Communication is ongoing.
AC TIVIT Y
Financial reporting:
• Assessment of accounting and report-
ing differences.
• Selection of IFRS accounting policies
and IFRS 1 elections.
• Development of IFRS financial state-
ment format, including disclosures.
• Quantification of effects of
conversion.
Systems and processes:
• Assessment of impact of changes on
systems and processes.
• Implementation of any system and pro-
cess design changes including training
appropriate personnel.
• Documentation and testing of internal
controls over new systems and
processes.
Business:
• Assessment of impacts on all areas of
the business, including contractual
arrangements and implementation of
changes as necessary.
• Communicate conversion plan and
progress against it internally and
externally.
72
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
U.S. GA AP DIFFERENCES
We prepare our financial statements in accordance with Canadian
GAAP. U.S. GAAP differs from Canadian GAAP in certain respects.
The areas of principal differences and their impact on our 2008
Audited Consolidated Financial Statements are described in Note
25 to the 2008 Audited Consolidated Financial Statements. The sig-
nificant differences in accounting relate to:
• Differences in business combinations and consolidation accounting;
• Gain on Sale of Cable Systems;
• Pre-Operating Costs Capitalized;
• Capitalized Interest;
• Financial Instruments;
• Stock-Based Compensation;
• Pensions;
• Income Taxes; and
• Installation Revenues and Costs.
Recent U.S. accounting pronouncements are also discussed in Note
25 to the 2008 Audited Consolidated Financial Statements.
6. ADDITIONAL FINANCIAL INFORMATION
REL ATED PART Y T R ANSAC TIONS
We have entered into certain transactions in the normal course
of business with certain broadcasters in which we have an equity
interest. The amounts paid to these broadcasters are as follows:
Years ended December 31,
(In millions of dollars)
2008
2007
% Chg
Access fees paid to broadcasters accounted for by the equity method
$
17 $
18
–
We have entered into certain transactions with companies, the partners or senior officers of which are or have been Directors of our
Company and/or its subsidiary companies. Total amounts paid to these related parties, directly or indirectly, are as follows:
Years ended December 31,
(In millions of dollars)
2008
2007
% Chg
Legal services and commissions paid on premiums for insurance coverage
$
7 $
2
n/m
We have entered into certain transactions with our controlling shareholder and companies controlled by the controlling shareholder.
These transactions are subject to formal agreements approved by the Audit Committee. Total amounts paid (received) by us to (from) these
related parties are as follows:
Years ended December 31,
(In millions of dollars)
2008
2007
% Chg
Recoveries for use of aircraft and other administrative services
$
(1) $
(1)
–
These transactions are measured at the exchange amount, being the amount agreed to by the related parties and are reviewed by the
Audit Committee.
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
73
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FIVE-YEAR S UMMARY OF C ONSOLIDATED F INANCIAL R ESULTS
Years ended December 31,
(In millions of dollars, except per share amounts)
Income and Cash Flow:
Revenue
Wireless
Cable
Media
Corporate and eliminations
Operating profit(1)
Wireless
Cable
Media
Corporate and eliminations
Adjusted operating profit(1)
Wireless
Cable
Media
Corporate and eliminations
Net Income (loss)(2)
Adjusted net income (loss)
Cash flow from operations (3)
Property, plant and equipment expenditures
Average Class A and Class B shares outstanding (Ms)(4)
Net income (loss) per share:(2)(4)
Basic
Diluted
Adjusted net income (loss) per share:
Basic
Diluted
Balance Sheet:
Assets
Property, plant and equipment, net
Goodwill
Intangible assets
Investments
Other assets
Liabilities and Shareholders’ Equity
Long-term debt (2)
Accounts payable and other liabilities
Total liabilities
Shareholders’ equity
Ratios:
Revenue growth
Adjusted operating profit growth
Debt
Dividends declared per share(4)
(2)/adjusted operating profit
2008
2007
2006
2005
2004
$
6,335 $
3,809
1,496
(305)
5,503 $
3,558
1,317
(255)
4,580 $
3,201
1,210
3,860 $
2,492
1,097
(153)
(115)
2,689
1,946
957
(78)
$ 11,335 $ 10,123 $
8,838 $
7,334 $
5,514
$
2,797 $
1,220
142
(81)
2,532 $
802
82
(317)
1,969 $
890
151
(135)
1,337 $
765
128
(86)
950
709
115
(41)
$
4,078 $
3,099 $
2,875 $
2,144 $
1,733
$
2,806 $
1,233
142
(121)
2,589 $
1,016
176
(78)
1,987 $
916
156
(117)
1,409 $
778
131
(66)
958
715
117
(38)
$
4,060 $
3,703 $
2,942 $
2,252 $
1,752
$
$
$
1,002 $
1,260 $
637 $
1,066 $
622 $
684 $
(45) $
47 $
(68)
(32)
3,522 $
2,021 $
638
3,135 $
1,796 $
642
2,386 $
1,712 $
642
1,551 $
1,355 $
577
1,305
1,055
481
$ 1.57 $
1.57
1.00 $
0.99
0.99 $
0.97
(0.08) $
(0.08)
(0.14)
(0.14)
$ 1.98
1.98
$
1.67 $
1.66
$
1.08
1.07
$
0.08
0.08
(0.07)
(0.07)
$
7,898 $
3,024
2,761
343
3,067
7,289 $
3,027
2,086
485
2,438
6,732 $
2,779
2,152
139
2,303
6,152 $
3,036
2,627
138
1,881
5,487
3,389
2,856
139
1,402
$ 17,093 $ 15,325 $ 14,105 $ 13,834 $ 13,273
$
8,506 $
3,860
12,366
4,727
6,033 $
4,668
10,701
4,624
6,988 $
2,917
9,905
4,200
7,739 $
2,567
10,306
3,528
8,542
2,346
10,888
2,385
$ 17,093 $ 15,325 $ 14,105 $ 13,834 $ 13,273
12%
10%
2.1
$ 1.00 $
15%
26%
2.1
0.42 $
21%
31%
2.7
0.08 $
33%
29%
3.8
0.06 $
16%
21%
5.3
0.05
(1) As defined. See section entitled “key Performance Indicators Non-GAAP Measures”.
(2) Year ended December 31, 2004 has been restated for a change in accounting of foreign exchange translation. The ratio of debt to adjusted operating profit includes debt and the foreign exchange
component of the fair value of derivative instruments.
(3) Cash flow from operations before changes in working capital amounts.
(4) Prior period shares and per share amounts have been retroactively adjusted to reflect a two-for-one-split of the Company’s Class A Voting and Class B Non-Voting shares on December 29, 2006.
74
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SUMMARY OF SEASONALIT Y AND QUARTERLY RESULTS
Quarterly results and statistics for the previous eight quarters are
outlined following this section.
Our operating results are subject to seasonal fluctuations that mate-
rially impact quarter-to-quarter operating results. As a result, one
quarter’s operating results are not necessarily indicative of what
a subsequent quarter’s operating results will be. Each of Wireless,
Cable and Media has unique seasonal aspects to its business.
Wireless’ operating results are subject to seasonal fluctuations
that materially impact quarter-to-quarter operating results. In
particular, operating results may be influenced by the timing of
our marketing and promotional expenditures and higher levels of
subscriber additions and subsidies, resulting in higher subscriber
acquisition and activation-related expenses in certain periods.
Cable Operations services revenue and operating profit increased
primarily due to price increases, increased penetration of its digital
products and incremental programming packages, and the scal-
ing and rapid growth of our cable telephony service. Similarly, the
steady growth of Internet revenues has been the result of a greater
penetration of Internet subscribers as a percentage of homes
passed. RBS’ operating profit margin reflects the pricing pressures
on long-distance and higher carrier costs as it focuses on managing
the profitability of its existing customer base and evaluates prof-
itable opportunities within the medium and large enterprise and
carrier segments. Rogers Retail revenue has increased as a result of
increasing Wireless products and services.
Media’s results are primarily attributable to a general down-
turn in demand for local advertising due to the softness in the
Ontario economy.
The operating results of Cable Operations services are subject to
modest seasonal fluctuations in subscriber additions and discon-
nections, which are largely attributable to movements of university
and college students and individuals temporarily suspending ser-
vice due to extended vacations, or seasonal relocations, as well as
our concentrated marketing efforts generally conducted during
the fourth quarter. Rogers Retail operations may also experience
modest fluctuations from quarter-to-quarter due to the availability
and timing of release of popular titles throughout the year. RBS
does not have any unique seasonal aspects to its business.
The seasonality at Media is a result of fluctuations in advertising
and related retail cycles, since they relate to periods of increased
consumer activity as well as fluctuations associated with the Major
League Baseball season, where revenues are generally concen-
trated in the spring, summer and fall months.
In addition to the seasonal trends, revenue and operating profit
can fluctuate from general economic conditions. The Canadian
economy, and Ontario in particular, experienced an economic slow-
down in the latter half of 2008.
Wireless revenue and operating profit growth reflects the increas-
ing number of wireless voice and data subscribers, increase in
blended postpaid and prepaid ARPU, and increased handset subsi-
dies as a result of a consumer shift towards smartphones. Wireless
has continued its strategy of targeting higher value postpaid sub-
scribers and selling prepaid handsets at higher price points, which
has also contributed over time to the significantly heavier mix of
postpaid versus prepaid subscribers. Meanwhile, the successful
growth in customer base and increased market penetration have
been met by increasing customer service and retention expenses
and increasing credit and collection costs. However, these costs
have been offset by operating efficiencies and increasing GSM net-
work roaming revenues from our subscribers travelling outside of
Canada, as well as strong growth in roaming revenues from visitors
to Canada utilizing our GSM network.
Other fluctuations in net income from quarter-to-quarter can also
be attributed to losses on repayment of debt, foreign exchange
gains or losses, changes in the fair value of derivative instruments,
other income and expenses, writedowns of goodwill, intan-
gible assets and other long-term assets and changes in income
tax expense.
SUMMARY OF F OURTH Q UARTER 20 08 R ESULTS
During the three months ended December 31, 2008, consolidated
operating revenue increased 9% to $2,941 million in 2008 compared
to $2,687 million in the corresponding period in 2007, with all of
our operating segments contributing to the year-over-year growth,
including 13% growth at Wireless, 7% growth at Cable, and 8%
growth at Media. Consolidated fourth quarter adjusted operating
profit grew 1% year-over-year to $968 million, with 18% growth at
Cable, offset by 3% decline at Wireless, and 27% decline at Media.
The decline at Wireless was related to higher acquisition and reten-
tion costs related to a successful smartphone campaign, while
Media experienced declines in advertising revenues resulting from
the economic slowdown in Canada.
Consolidated operating income for the three months ended
December 31, 2008, totalled $137 million, compared to $476 million
in the corresponding period of 2007. Decline in operating income is
a result of the impairment loss recognized in the conventional tele-
vision business of the Media operating segment during the fourth
quarter of 2008 as discussed below.
We recorded net loss of $138 million for the three months ended
December 31, 2008, or basic and diluted loss per share of $0.22,
compared to a net income of $254 million or basic and diluted earn-
ings per share of $0.40 in the corresponding period of 2007. The net
loss was primarily attributable to the writedown of certain Media
assets. In the fourth quarter of 2008, we determined that the fair
value of the conventional television business of Media was lower
than its carrying value. This primarily resulted from weakening of
industry expectations and declines in advertising revenues amidst
the slowing economy. As a result, we recorded an aggregate
non-cash impairment charge of $294 million with the following
components: $154 million related to goodwill, $75 million related to
broadcast licences and $65 million related to intangible assets and
other long-term assets.
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
75
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
QUARTERLY CONSOLIDATED FINANCIAL SUMMARY
(In millions of dollars,
except per share amounts)
Income Statement
Operating Revenue
Q1
Q2
Q3
2008
Q4
Q1
Q2
Q3
2007
Q4
Wireless
Cable
Media
Corporate and eliminations
$
1,431 $
925
307
(54)
1,522 $
938
409
(66)
1,727 $
961
386
(92)
1,655 $
985
394
(93)
1,231 $
855
266
(54)
1,364 $
881
348
(66)
1,442 $
899
339
(69)
1,466
923
364
(66)
2,609
2,803
2,982
2,941
2,298
2,527
2,611
2,687
Operating profit before the undernoted
Wireless
Cable
Media
Corporate and eliminations
Stock option plan amendment (1)
Stock-based compensation recovery
(1)
(expense)
Integration and restructuring
expenses
(2)
Adjustment for CRTC Part II
fees decision (3)
Contract renegotiation fee(4)
Operating profit(5)
Depreciation and amortization
Impairment losses on goodwill,
intangible assets and
other long-term assets(6)
Operating income
Interest on long-term debt
Other income (expense)
Income tax reduction (expense)
Net income (loss) for the period
Net income (loss) per share:
Basic
Diluted
Additions to property, plant
and equipment(5)
705
303
2
(26)
984
–
769
304
52
(36)
693
318
43
(29)
1,089
–
1,025
–
639
313
46
(30)
968
–
581
228
19
(14)
814
–
664
243
45
(22)
686
265
46
(13)
930
(452)
984
–
658
265
63
(29)
957
–
116
(53)
62
(25)
(15)
(32)
(11)
(4)
(5)
(3)
(2)
(41)
(1)
(15)
(5)
(17)
–
–
1,095
440
(37)
–
–
–
996
420
1,085
429
–
–
902
471
–
–
798
400
–
–
431
398
18
–
986
397
–
–
–
294
–
–
–
655
(138)
(3)
(170)
576
(133)
11
(153)
656
(147)
–
(14)
137
(157)
(31)
(87)
398
(149)
7
(86)
33
(152)
(24)
87
589
(140)
(14)
(166)
–
(52)
884
408
–
476
(138)
–
(84)
$
$
$
$
344 $
301 $
495 $
(138) $
170 $
(56) $
269 $
254
0.54 $
0.54 $
0.47 $
0.47 $
0.78 $
0.78 $
(0.22) $
(0.22) $
0.27 $
0.26 $
(0.09) $
(0.09) $
0.42 $
0.42 $
0.40
0.40
321 $
481 $
436 $
783 $
394 $
381 $
397 $
624
(1) See section entitled “Stock-based Compensation”.
(2) Costs incurred relate to severances resulting from the restructuring of our employee base to improve our cost structure in light of the declining economic conditions, the integration of Call-Net, Futureway
and Aurora Cable, the restructuring of Rogers Business Solutions (“RBS”), and the closure of certain Rogers Retail stores.
(3) Related to an adjustment of CRTC Part II fees related to prior periods. See the section entitled “Government Regulation and Regulatory Developments”.
(4) One-time charge resulting from the renegotiation of an Internet-related services agreement.
(5) As defined. See the section entitled “key Performance Indicators and Non-GAAP Measures”.
(6) In the fourth quarter of 2008, we determined that the fair value of the conventional television business of Media was lower than its carrying value. This primarily resulted from weakening of industry
expectations and declines in advertising revenues amidst the slowing economy. As a result, we recorded an aggregate non-cash impairment charge of $294 million with the following components:
$154 million related to goodwill, $75 million related to broadcast licences and $65 million related to intangible assets and other long-term assets.
76
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ADJUSTED Q UARTERLY C ONSOLIDATED F INANCIAL S UMMARY (1)
(In millions of dollars,
except per share amounts)
Income Statement
Operating Revenue
Q1
Q2
Q3
2008
Q4
Q1
Q2
Q3
2007
Q4
Wireless
Cable
Media
Corporate and eliminations
$
1,431 $
925
307
(54)
1,522 $
938
409
(66)
1,727 $
961
386
(92)
1,655 $
985
394
(93)
1,231 $
855
266
(54)
1,364 $
881
348
(66)
1,442 $
899
339
(69)
1,466
923
364
(66)
2,609
2,803
2,982
2,941
2,298
2,527
2,611
2,687
Adjusted operating profit (2)
Wireless
Cable
Media
Corporate and eliminations
Depreciation and amortization
Adjusted operating income
Interest on long-term debt
Other income (expense)
Income tax reduction (expense)
Adjusted net income for the period
Adjusted net income (loss) per share:
Basic
Diluted
Additions to property, plant
and equipment(2)
$
$
$
$
705
303
2
(26)
984
440
544
(138)
(3)
(133)
769
304
52
(36)
693
318
43
(29)
1,089
420
1,025
429
669
(133)
11
(183)
596
(147)
16
–
639
313
46
(30)
968
471
497
(157)
(31)
(145)
581
228
19
(14)
814
400
414
(149)
7
(86)
664
243
45
(22)
930
398
532
(152)
23
(104)
686
265
46
(13)
984
397
587
(140)
(14)
(165)
658
265
63
(29)
957
408
549
(138)
–
(109)
270 $
364 $
465 $
164 $
186 $
299 $
268 $
302
0.54 $
0.54 $
0.47 $
0.47 $
0.78 $
0.78 $
0.26 $
0.26 $
0.29 $
0.29 $
0.47 $
0.47 $
0.42 $
0.41 $
0.47
0.47
321 $
481 $
436 $
783 $
394 $
381 $
397 $
624
(1) This quarterly summary has been adjusted to exclude the impact of the adoption of a cash settlement feature for employee stock options, stock-based compensation expense, integration and restruc-
turing costs, an adjustment to CRTC Part II fees related to prior periods, a one-time charge related to the renegotiation of an Internet-related services agreement, losses on impairment of goodwill,
intangible assets and other long-term assets, debt transaction costs, losses on repayment of long-term debt and the income tax impact related to the above items. Certain prior year numbers have been
reclassified to conform to the current year presentation. See the section entitled “key Performance Indicators and Non-GAAP Measures”. The adjustment related to Part II CRTC fees is applicable to the
third quarter of 2007 and does not impact the full year 2007.
(2) As defined. See the section entitled “key Performance Indicators and Non-GAAP Measures”.
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As of the end of the period covered by this report (the “Evaluation
Date”), we conducted an evaluation (under the supervision and
with the participation of our management, including the Acting
Chief Executive Officer and Chief Financial Officer), pursuant to
Rule 13a-15 promulgated under the Securities Exchange Act of
1934, as amended (the “Exchange Act”), of the effectiveness of the
design and operation of our disclosure controls and procedures.
Based on this evaluation, our Acting Chief Executive Officer and
Chief Financial Officer concluded that as of the Evaluation Date
such disclosure controls and procedures were effective.
Management ’s Report on Internal Control Over Financial
Reporting
The management of our company is responsible for establishing
and maintaining adequate internal control over financial reporting.
Our internal control system was designed to provide reasonable
assurance to our management and Board of Directors regarding
the preparation and fair presentation of published financial state-
ments in accordance with generally accepted accounting principles.
All internal control systems, no matter how well designed, have
inherent limitations. Therefore, even those systems determined to
be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation.
Management maintains a comprehensive system of controls
intended to ensure that transactions are executed in accordance
with management’s authorization, assets are safeguarded, and
financial records are reliable. Management also takes steps to see
that information and communication flows are effective and to
monitor performance, including performance of internal control
procedures.
Management assessed the effectiveness of our internal control
over financial reporting as of December 31, 2008, based on the cri-
teria set forth in the Internal Control-Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”). Based on this assessment, management has
concluded that, as of December 31, 2008, our internal control over
financial reporting is effective. Our independent auditor, KPMG
LLP, has issued an audit report that we maintained, in all mate-
rial respects, effective internal control over financial reporting as
of December 31, 2008, based on the criteria established in Internal
Control – Integrated Framework issued by the COSO.
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
77
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Changes in Internal Control Over Financial Reporting and
Disclosure Controls and Procedures
There have been no changes in our internal controls over financial
reporting during 2008 that have materially affected, or are reason-
ably likely to materially affect, our internal controls over financial
reporting.
SUPPLEMENTARY INFORMATION: NON - GA AP C ALCUL ATIONS
Operating Profit Margin Calculations
Years ended December 31,
(In millions of dollars)
RCI:
Adjusted operating profit
Divided by total revenue
RCI adjusted operating profit margin
WIRELESS:
Adjusted operating profit
Divided by network revenue
Wireless adjusted operating profit margin
CABLE:
Cable Operations:
Adjusted operating profit
Divided by revenue
Cable Operations adjusted operating profit margin
Rogers Business Solutions:
Adjusted operating profit
Divided by revenue
Rogers Business Solutions adjusted operating profit margin
Rogers Retail:
Adjusted operating profit (loss)
Divided by revenue
Rogers Retail adjusted operating profit (loss) margin
MEDIA:
Adjusted operating profit
Divided by revenue
Media adjusted operating profit margin
78
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
2008
2007
$
4,060 $
11,335
3,703
10,123
35.8%
36.6%
$
2,806 $
5,843
2,589
5,154
48.0%
50.2%
$
1,171 $
2,878
1,008
2,603
40.7%
38.7%
$
59 $
526
12
571
11.2%
2.1%
$
3 $
417
(4)
393
0.7%
(1.0%)
$
142 $
1,496
176
1,317
9.5%
13.4%
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
C ALCUL ATIONS OF A DJUSTED O PER ATING P ROFIT, NET I NCOME AND E ARNINGS P ER S HARE
Years ended December 31,
(In millions of dollars, number of shares outstanding in millions)
Operating profit
Add (deduct):
Stock option plan amendment
Stock-based compensation (recovery) expense
Adjustment for CRTC Part II fees decision
Integration and restructuring expenses
Contract renegotiation fee
Adjusted operating profit
Net income
Add (deduct):
Stock option plan amendment
Stock-based compensation (recovery) expense
Adjustment for CRTC Part II fees decision
Integration and restructuring expenses
Contract renegotiation fee
Loss on repayment of long-term debt
Impairment losses on goodwill, intangible assets and other long-term assets
Debt issuance costs
Income tax impact
Adjusted net income
Adjusted basic earnings per share:
Adjusted net income
Divided by: weighted average number of shares outstanding
Adjusted basic earnings per share
Adjusted diluted earnings per share:
Adjusted net income
Divided by: diluted weighted average number of shares outstanding
Adjusted diluted earnings per share
2008
2007
$
4,078 $
3,099
–
(100)
31
51
–
452
62
–
38
52
$
4,060 $
3,703
$
1,002 $
637
–
(100)
31
51
–
–
294
16
(34)
452
62
–
38
52
47
–
–
(222)
$
1,260 $
1,066
$
1,260 $
638
1,066
638
$
1.98 $
1.67
$
1,260 $
638
1,066
642
$
1.98 $
1.66
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
79
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
WIRELESS N ON - GA AP C ALCUL ATIONS (1)
Years ended December 31,
(In millions of dollars, subscribers in thousands, except ARPU figures and operating profit margin)
Postpaid ARPU (monthly)
Postpaid (voice and data) revenue
Divided by: average postpaid wireless voice and data subscribers
Divided by: 12 months
Prepaid ARPU (monthly)
Prepaid (voice and data) revenue
Divided by: average prepaid subscribers
Divided by: 12 months
Cost of acquisition per gross addition
Total sales and marketing expenses
Equipment margin loss (acquisition related)
2008
2007
$
5,548 $ 4,868
5,618
6,142
12
12
$
75.27 $
72.21
$
285 $
1,426
12
273
1,382
12
$
16.65 $
16.46
$
691 $
219
653
149
$
910 $
802
Divided by: total gross wireless additions (postpaid, prepaid and one-way messaging)
1,982
1,998
Operating expense per average subscriber (monthly)
Operating, general and administrative expenses
Equipment margin loss (retention related)
Divided by: average total wireless subscribers
Divided by: 12 months
Equipment margin loss
Equipment sales
Cost of equipment sales
Acquisition related
Retention related
Adjusted operating profit margin
Adjusted operating profit
Divided by network revenue
Adjusted operating profit margin
(1) For definitions of key performance indicators and non-GAAP measures, see the section entitled “key Performance Indicators and Non-GAAP Measures”.
$
459 $
401
$
1,833 $
294
1,558
205
$
2,127 $
1,763
7,678
12
7,128
12
$
23.09 $
20.61
$
492 $
(1,005)
349
(703)
$
(513) $
(354)
$
(219) $
(294)
(149)
(205)
$
(513) $
(354)
$
2,806 $
5,843
2,589
5,154
48.0%
50.2%
80
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
C ABLE N ON - GA AP C ALCUL ATIONS (1)
Years ended December 31,
(In millions of dollars, subscribers in thousands, except ARPU figures and operating profit margin)
Core Cable ARPU
Core Cable revenue
Divided by: average basic cable subscribers
Divided by: 12 months
Internet ARPU
Internet revenue
Divided by: average Internet (residential) subscribers
Divided by: 12 months
Cable Operations adjusted operating profit margin:
Adjusted operating profit
Divided by revenue
Cable Operations adjusted operating profit margin
RBS adjusted operating profit margin:
Adjusted operating profit
Divided by revenue
RBS adjusted operating profit margin
(1) For definitions of key performance indicators and non-GAAP measures, see the section entitled “key Performance Indicators and Non-GAAP Measures”.
2008
2007
$
1,669 $
2,300
12
1,540
2,276
12
$
60.47 $
56.39
$
695 $
1,531
12
608
1,388
12
$
37.82 $
36.51
$
1,171 $
2,878
1,008
2,603
40.7%
38.7%
$
59 $
526
12
571
11.2%
2.1%
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
81
MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING
DECEMBER 31, 2008
The accompanying consolidated financial statements of Rogers
Communications Inc. and its subsidiaries and all the information
in Management’s Discussion and Analysis are the responsibility of
management and have been approved by the Board of Directors.
The Board of Directors is responsible for overseeing management’s
responsibility for financial reporting and is ultimately responsible for
reviewing and approving the consolidated financial statements. The
Board carries out this responsibility through its Audit Committee.
The consolidated financial statements have been prepared by
management in accordance with Canadian generally accepted
accounting principles. The consolidated financial statements
include certain amounts that are based on the best estimates and
judgments of management and in their opinion present fairly, in all
material respects, Rogers Communications lnc.’s financial position,
results of operations and cash flows. Management has prepared
the financial information presented elsewhere in Management’s
Discussion and Analysis and has ensured that it is consistent with
the consolidated financial statements.
Management of Rogers Communications Inc., in furtherance of the
integrity of the consolidated financial statements, has developed
and maintains a system of internal controls, which is supported
by the internal audit function. Management believes the internal
controls provide reasonable assurance that transactions are
properly authorized and recorded, financial records are reliable
and form a proper basis for the preparation of consolidated
financial statements and that Rogers Communications lnc.’s assets
are properly accounted for and safeguarded. The internal control
processes include management’s communication to employees of
policies that govern ethical business conduct.
The Audit Committee meets periodically with management, as well
as the internal and external auditors, to discuss internal controls
over the financial reporting process, auditing matters and financial
reporting issues; to satisfy itself that each party is properly
discharging its responsibilities; and to review Management’s
Discussion and Analysis, the consolidated financial statements
and the external auditors’ report. The Audit Committee reports
its findings to the Board of Directors for consideration when
approving the consolidated financial statements for issuance to
the shareholders. The Audit Committee also considers, for review
by the Board of Directors and approval by the shareholders, the
engagement or re-appointment of the external auditors.
The consolidated financial statements have been audited by KPMG
LLP, the external auditors, in accordance with Canadian generally
accepted auditing standards on behalf of the shareholders. KPMG
LLP has full and free access to the Audit Committee.
February 18, 2009
Alan D. Horn, C.A.
Acting President and
Chief Executive Officer
William W. Linton, C.A.
Senior Vice President, Finance
and Chief Financial Officer
AUDITORS’ REPORT TO THE SHAREHOLDERS
We have audited the consolidated balance sheets of Rogers
Communications Inc. as at December 31, 2008 and 2007 and
the consolidated statements of income, shareholders’ equity,
comprehensive income and cash flows for each of the years in
the two-year period ended December 31, 2008. These financial
statements are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with Canadian generally
accepted auditing standards. Those standards require that we plan
and perform an audit to obtain reasonable assurance whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation.
82
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
In our opinion, these consolidated financial statements present
fairly, in all material respects, the financial position of the Company
as at December 31, 2008 and 2007 and the results of its operations
and its cash flows for each of the years in the two-year period
ended December 31, 2008 in accordance with Canadian generally
accepted accounting principles.
Chartered Accountants, Licensed Public Accountants
Toronto, Canada
February 18, 2009
CONSOLIDATED S TATEMENTS OF I NCOME
(IN MILLIONS OF CANADIAN DOLLARS, ExCEPT PER SHARE AMOuNTS)
Years ended December 31, 2008 and 2007
Operating revenue (note 3(b))
Operating expenses:
Cost of sales
Sales and marketing
Operating, general and administrative
Stock option plan amendment (note 19(a)(i))
Integration and restructuring (note 6)
Depreciation and amortization
Impairment losses on goodwill, intangible assets and other long-term assets (notes 11(a) and 13)
Operating income
Interest on long-term debt
Debt issuance costs (note 14(a))
Loss on repayment of long-term debt (note 14(f))
Foreign exchange gain (loss)
Change in fair value of derivative instruments
Other income (expense), net
Income before income taxes
Income tax expense (recovery) (note 7):
Current
Future
Net income for the year
Net income per share (note 8):
Basic
Diluted
See accompanying notes to consolidated financial statements.
2008
2007
$ 11,335 $ 10,123
1,303
1,334
4,569
–
51
1,760
294
2,024
(575)
(16)
–
(99)
64
28
961
1,322
4,251
452
38
1,603
–
1,496
(579)
–
(47)
54
(34)
(4)
1,426
886
3
421
424
$
1,002 $
(1)
250
249
637
$
1.57 $
1.57
1.00
0.99
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
83
2008
2007
$
1,403 $
442
446
2,291
7,898
3,024
2,761
343
507
269
1,245
304
594
2,143
7,289
3,027
2,086
485
–
295
$ 17,093 $ 15,325
$
19 $
2,412
1
45
239
2,716
8,506
616
184
344
61
2,260
1
195
225
2,742
6,032
1,609
214
104
12,366
4,727
10,701
4,624
$ 17,093 $ 15,325
CONSOLIDATED B ALANCE SHEETS
(IN MILLIONS OF CANADIAN DOLLARS)
December 31, 2008 and 2007
Assets
Current assets:
Accounts receivable, net of allowance for doubtful accounts of $163 (2007 - $151)
Other current assets (note 9)
Future income tax assets (note 7)
Property, plant and equipment (note 10)
Goodwill (note 11(b))
Intangible assets (note 11(c))
Investments (note 12)
Derivative instruments (note 15(d))
Other long-term assets (note 13)
Liabilities and Shareholders’ Equity
Current liabilities:
Bank advances, arising from outstanding cheques
Accounts payable and accrued liabilities
Current portion of long-term debt (note 14)
Current portion of derivative instruments (note 15(d))
unearned revenue
Long-term debt (note 14)
Derivative instruments (note 15(d))
Other long-term liabilities (note 16)
Future income tax liabilities (note 7)
Shareholders’ equity (note 18)
Guarantees (note 15(e)(ii))
Commitments (note 23)
Contingent liabilities (note 24)
Canadian and united States accounting policy differences (note 25)
Subsequent events (notes 24(d) and 26)
See accompanying notes to consolidated financial statements.
On behalf of the Board:
Alan D. Horn, CA
Director
Ronald D. Besse
Director
84
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
CONSOLIDATED S TATEMENTS OF S HAREHOLDERS’ EqUITY
(IN MILLIONS OF CANADIAN DOLLARS)
Years ended December 31, 2008 and 2007
Amount
Number
of shares
(000s)
Amount
Number
of shares
(000s)
Contributed
surplus
Class A Voting shares
Class B Non-Voting shares
Accumulated
other
Retained comprehensive
earnings
(deficit)
Total
income shareholders’
equity
(loss)
$
72
112,468 $
425
523,232 $
3,736 $
(33) $
– $ 4,200
Balances, December 31, 2006
Change in accounting policy related
to financial instruments (note 2(h)(ii))
As restated, January 1, 2007
Net income for the year
Class A Voting shares converted to
Class B Non-Voting shares
Stock option plan amendment
Shares issued on exercise
of stock options
Stock-based compensation
Dividends declared
Other comprehensive income
Balances, December 31, 2007
Net income for the year
Shares issued on exercise
of stock options
Dividends declared
Repurchase of Class B
Non-Voting shares (note 18(c))
Other comprehensive loss
–
72
–
–
–
–
–
–
–
–
–
–
–
3
(214)
(211)
112,468
–
425
–
523,232
–
3,736
–
(30)
637
(214)
–
3,989
637
(6)
–
–
–
–
–
–
–
46
–
–
–
6
–
3,767
–
–
–
–
(50)
(9)
12
–
–
–
–
–
–
(265)
–
72
–
112,462
–
471
–
527,005
–
3,689
–
342
1,002
–
–
–
–
–
–
–
–
21
–
502
–
–
–
–
(638)
(4)
–
(4,077)
–
(129)
–
(4)
–
–
(145)
–
–
–
–
–
264
50
–
–
–
–
(50)
37
12
(265)
264
4,624
1,002
21
(638)
(137)
(145)
Balances, December 31, 2008
$
72
112,462 $
488
523,430 $
3,560 $
702 $
(95) $
4,727
See accompanying notes to consolidated financial statements.
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
85
CONSOLIDATED S TATEMENTS OF COMPREHENSI vE INCOME
(IN MILLIONS OF CANADIAN DOLLARS)
Years ended December 31, 2008 and 2007
Net income for the year
Other comprehensive income (loss):
Change in fair value of available-for-sale investments:
Increase (decrease) in fair value
Gain on disposal
Cash flow hedging derivative instruments:
Change in fair value of derivative instruments
Reclassification to net income of foreign exchange gain (loss) on long-term debt
Reclassification to net income of accrued interest
Related income taxes
Comprehensive income for the year
See accompanying notes to consolidated financial statements.
2008
2007
$
1,002 $
637
(146)
–
(146)
1,122
(1,274)
110
140
(2)
138
(635)
742
119
(42)
226
(188)
43
(145)
$
857 $
364
(100)
264
901
86
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
CONSOLIDATED S TATEMENTS OF C ASH FLOwS
(IN MILLIONS OF CANADIAN DOLLARS)
Years ended December 31, 2008 and 2007
Cash provided by (used in):
Operating activities:
Net income for the year
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and amortization
Impairment losses on goodwill, intangible assets and other long-term assets
Program rights and Rogers Retail rental amortization
Future income taxes
unrealized foreign exchange loss (gain)
Change in fair value of derivative instruments
Loss on repayment of long-term debt
Stock option plan amendment
Stock-based compensation expense (recovery)
Amortization of fair value increment on long-term debt and derivatives
Other
Change in non-cash operating working capital items (note 20(a))
Investing activities:
Additions to property, plant and equipment (“PP&E”)
Change in non-cash working capital items related to PP&E
Acquisition of spectrum licences
Acquisitions, net of cash and cash equivalents acquired
Additions to program rights and CRTC commitments
Other
Financing activities:
Issuance of long-term debt
Repayment of long-term debt
Premium on repayment of long-term debt
Financing costs incurred
Payment on re-couponing of cross-currency interest rate exchange agreements
Payment on settlement of cross-currency interest rate exchange agreements and forward contracts
Proceeds on settlement of cross-currency interest rate exchange agreements and forward contracts
Repurchase of Class B Non-Voting shares
Issuance of capital stock on exercise of stock options
Dividends paid
Increase (decrease) in cash and cash equivalents
Cash deficiency, beginning of year
Cash deficiency, end of year
Cash and cash equivalents (deficiency) are defined as cash and short-term deposits, which have an original maturity of less than 90 days, less bank advances.
For supplemental cash flow information see note 20(b).
See accompanying notes to consolidated financial statements.
2008
2007
$
1,002 $
637
1,760
294
146
421
65
(64)
–
–
(100)
(5)
3
3,522
(215)
1,603
–
92
250
(46)
34
47
452
62
(6)
10
3,135
(310)
3,307
2,825
(2,021)
40
(1,008)
(191)
(150)
(7)
(1,796)
(20)
–
(537)
(67)
(18)
(3,337)
(2,438)
4,474
(3,335)
–
–
(375)
(969)
970
(137)
3
(559)
5,476
(5,623)
(59)
(4)
–
(873)
838
–
27
(211)
72
(429)
42
(61)
$
(19) $
(42)
(19)
(61)
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
87
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABuLAR AMOuNTS IN MILLIONS OF CANADIAN DOLLARS, ExCEPT PER SHARE AMOuNTS)
YEARS ENDED DECEMBER 31, 2008 AND 2007
1. NATURE OF THE BUSINESS
Rogers Communications Inc. (“RCI”) is a diversified Canadian
communications and media company, with substantially all of
its operations and sales in Canada. RCI is engaged in wireless
voice and data communications services through its Wireless
segment (“Wireless”); cable television, high-speed Internet access,
telephony, data networking and retailing of wireless, cable
and video products and services (“Rogers Retail”) through its
Cable segment (“Cable”); and radio and television broadcasting,
televised shopping, magazines and trade publications, and sports
entertainment through its Media segment (“Media”). RCI and
its subsidiary companies are collectively referred to herein as the
“Company”.
2. SIGNIFICANT ACCOUNTING POLICIES
(A) BASIS OF PRESENTATION:
The consolidated financial statements are prepared in accordance
with Canadian generally accepted accounting principles (“GAAP”)
and differ in certain significant respects from accounting principles
generally accepted in the united States of America (“united States
GAAP”) as described in note 25.
The consolidated financial statements include the accounts of
RCI and its subsidiary companies. Intercompany transactions and
balances are eliminated on consolidation.
Investments over which the Company is able to exercise significant
influence are accounted for by the equity method. Investments
over which the Company has joint control are accounted for by the
proportionate consolidation method. Publicly traded investments
where no control or significant influence exists are classified as
available-for-sale investments and are recorded at fair value.
Changes in fair value are recorded in other comprehensive income
until such time as the investments are disposed of or impaired. Other
investments where fair value is not readily available are recorded at
cost. Investments are written down when there is evidence that a
decline in value that is other than temporary has occurred.
Certain of the prior year comparative figures have been reclassified
to conform with the financial statement presentation adopted in
the current year.
(B) REvENUE RECOGNITION:
The Company’s principal sources of revenue and recognition of
these revenues for financial statement purposes are as follows:
(i) Monthly subscriber fees in connection with wireless and
wireline services, cable, telephony, Internet services, rental
of equipment, network services and media subscriptions
are recorded as revenue on a pro rata basis as the service is
provided;
(ii) Revenue from airtime, roaming, long-distance and optional
services, pay-per-use services, video rentals and other sales of
products are recorded as revenue as the services or products
are delivered;
(iii) Revenue from the sale of wireless and cable equipment is
recorded when the equipment is delivered and accepted by
the independent dealer or subscriber in the case of direct sales.
Equipment subsidies related to new and existing subscribers
are recorded as a reduction of equipment revenues;
88
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
(iv) Installation fees and activation fees charged to subscribers do
not meet the criteria as a separate unit of accounting. As a
result, in Wireless these fees are recorded as part of equipment
revenue and, in Cable, are deferred and amortized over the
related service period. The related service period for Cable
ranges from 26 to 48 months, based on subscriber disconnects,
transfers of service and moves. Incremental direct installation
costs related to reconnects are deferred to the extent of
deferred installation fees and amortized over the same period
as these related installation fees. New connect installation
costs are capitalized to PP&E and amortized over the useful life
of the related assets;
(v) Advertising revenue is recorded in the period the advertising
airs on the Company’s radio or television stations and the
period in which advertising is featured in the Company’s
publications;
(vi) Monthly subscription revenues received by television stations
for subscriptions from cable and satellite providers are
recorded in the month in which they are earned;
(vii) The Toronto Blue Jays Baseball Club’s (“Blue Jays”) revenue from
home game admission and concessions is recognized as the
related games are played during the baseball regular season.
Revenue from radio and television agreements is recorded at
the time the related games are aired. The Blue Jays also receive
revenue from the Major League Baseball Revenue Sharing
Agreement, which distributes funds to and from member clubs,
based on each club’s revenues. This revenue is recognized in the
season in which it is earned, when the amount is estimable and
collectibility is reasonably assured; and
(viii) Discounts provided to customers related to combined purchases
of Wireless, Cable and Media products and services are charged
directly to the revenue for the products and services to which
they relate.
The Company offers certain products and services as part of multiple
deliverable arrangements. The Company divides multiple deliverable
arrangements into separate units of accounting. Components of
multiple deliverable arrangements are separately accounted for
provided the delivered elements have stand-alone value to the
customers and the fair value of any undelivered elements can be
objectively and reliably determined. Consideration for these units is
measured and allocated amongst the accounting units based upon
their fair values and the Company’s relevant revenue recognition
policies are applied to them. The Company recognizes revenue once
persuasive evidence of an arrangement exists, delivery has occurred
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
or services have been rendered, fees are fixed and determinable and
collectibility is reasonably assured.
unearned revenue includes subscriber deposits, cable installation
fees and amounts received from subscribers related to services and
subscriptions to be provided in future periods.
as the difference between the current stock price and the option
exercise price. The intrinsic value of the liability is marked-to-market
each period and is amortized to expense over the period in which
the related services are rendered, which is usually the graded vesting
period, or, as applicable, over the period to the date an employee is
eligible to retire, whichever is shorter.
(C ) SUBSCRIBER AC qUISITION AND RETENTION COSTS :
Except as described in note 2(b)(iv), as it relates to cable installation
costs, the Company expenses the costs related to the acquisition or
retention of subscribers.
(D) STOCk-BASED COMPENSATION AND OTHER STOCk-BASED
PAYMENTS:
On May 28, 2007, the Company’s employee stock option plans were
amended to attach cash settled share appreciation rights (“SARs”)
to all new and previously granted options. The SAR feature allows
the option holder to elect to receive in cash an amount equal to
the intrinsic value, being the excess market price of the Class B
Non-Voting share over the exercise price of the option, instead of
exercising the option and acquiring Class B Non-Voting shares. All
outstanding stock options are now classified as liabilities and are
carried at their intrinsic value, as adjusted for vesting, measured
Prior to May 28, 2007, the Company accounted for stock-based awards
that were settled by issuance of equity instruments using the fair
value method. The estimated fair value was amortized to expense
over the period in which the related services were rendered, which
was usually the vesting period or, as applicable, over the period to
the date an employee was eligible to retire, whichever was shorter.
The employee share accumulation plan allows employees to
voluntarily participate in a share purchase plan. under the terms
of the plan, employees of the Company can contribute a specified
percentage of their regular earnings through payroll deductions
and the Company makes certain defined contribution matches,
which are recorded as compensation expense in the period made.
(E) DEPRECIATION:
PP&E are depreciated over their estimated useful lives as follows:
Asset
Buildings
Towers, head-ends and transmitters
Distribution cable and subscriber drops
Network equipment
Wireless network radio base station equipment
Computer equipment and software
Customer equipment
Leasehold improvements
Basis
Mainly diminishing balance
Straight line
Straight line
Straight line
Straight line
Straight line
Straight line
Straight line
Equipment and vehicles
Mainly diminishing balance
Rate
5% to 6²⁄ ³%
6²⁄ ³ % to 25%
5% to 20%
6²⁄ ³% to 33¹⁄ ³%
12½% to 14¹⁄ ³%
14¹⁄ ³% to 33¹⁄ ³%
20% to 33¹⁄ ³%
Over shorter of
estimated useful life
and lease term
5% to 33¹⁄ ³%
INCOME TA xES:
(F )
Future income tax assets and liabilities are recognized for the future
income tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Future income tax assets
and liabilities are measured using enacted or substantively enacted
tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered
or settled. A valuation allowance is recorded against any future
income tax asset if it is not more likely than not that the asset
will be realized. Income tax expense is generally the sum of the
Company’s provision for current income taxes and the difference
between opening and ending balances of future income tax assets
and liabilities.
(G) FOREIGN CURRENC Y TR ANSL ATION :
Monetary assets and liabilities denominated in a foreign currency
are translated into Canadian dollars at the exchange rate in effect
at the balance sheet dates and non-monetary assets and liabilities
and related depreciation and amortization expenses are translated
at the historical exchange rate. Revenue and expenses, other than
depreciation and amortization, are translated at the average rate
for the month in which the transaction was recorded. Exchange
gains or losses on translating long-term debt are recognized in
the consolidated statements of income. Foreign exchange gains or
losses are primarily related to the translation of long-term debt.
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
89
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(H) FINANCIAL AND DERI vATIvE INSTRUMENTS :
(i) Adoption of new financial instruments standards:
On January 1, 2008, the Company adopted The Canadian
Institute of Chartered Accountants’ (“CICA”) Handbook
Section 3862, Financial Instruments – Disclosures (“CICA 3862”),
and CICA Handbook Section 3863, Financial Instruments –
Presentation (“CICA 3863”).
the issuer, between liabilities and equities, the classification of
related interest, dividends, gains and losses, and circumstances
in which financial assets and financial liabilities are offset.
The adoption of these standards did not have any impact on
the classification and measurement of the Company’s financial
instruments. The new disclosures pursuant to these new
Handbook Sections are included in note 15.
CICA 3862 requires entities to provide disclosures in their
financial statements that enable users to evaluate the
significance of financial instruments on the entity’s financial
position and its performance and the nature and extent of
risks arising from financial instruments to which the entity is
exposed during the year and at the balance sheet date, and
how the entity manages those risks.
(ii) Financial instruments:
On January 1, 2007, the Company adopted CICA Handbook
Section 3855, Financial Instruments – Recognition and
Measurement, Handbook Section 1530, Comprehensive
Income, Handbook Section 3251, Equity, and Handbook
Section 3865, Hedges, retrospectively without restatement.
CICA 3863 establishes standards for presentation of financial
instruments and non-financial derivatives. It deals with the
classification of financial instruments, from the perspective of
The impact of the adoption of these standards on opening
accumulated other comprehensive income and on opening
deficit at January 1, 2007 was as follows:
Available-for-sale investments
Derivative instruments
Opening accumulated other comprehensive income
Ineffective portion of hedging derivatives
Early repayment option
Deferred transitional gain
Transaction costs
Opening deficit
The Company’s financial assets are classified as available-for-
sale or loans and receivables. Available-for-sale investments
are carried at fair value on the balance sheet, with changes
in fair value recorded in other comprehensive income, until
such time as the investments are disposed of or an other-
than-temporary impairment has occurred, in which case the
impairment is recorded in income. Loans and receivables and
all financial liabilities are carried at amortized cost using the
effective interest method. The Company determined that none
of its financial assets are classified as held-for-trading or held-
to-maturity and none of its financial liabilities are classified as
held-for-trading.
The Company records all transaction costs for financial assets
and financial liabilities in the consolidated statements of
income as incurred.
(iii) Derivative instruments:
All derivatives, including embedded derivatives that must be
separately accounted for, are measured at fair value, with
changes in fair value recorded in the consolidated statements
of income unless they are effective cash flow hedging
instruments. The fair value of the Company’s cross-currency
interest rate exchange agreements (“Cross-Currency Swaps”)
is determined using an estimated credit-adjusted mark-to-
market valuation which involves increasing the treasury-related
discount rates used to calculate the risk-free estimated
90
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
Impact
upon
adoption
Income tax
impact
Net
impact
$
213 $
(561)
(2) $
136
211
(425)
$
(348) $
134 $
(214)
$
(10) $
19
54
2 $
(6)
(17)
(59)
20
$
4 $
(1) $
(8)
13
37
(39)
3
mark-to-market valuation by an estimated credit default swap
spread (“CDS Spread”) for the relevant term and counterparty
for each Cross-Currency Swap. In the case of Cross-Currency
Swaps in an asset position (i.e., those Cross-Currency Swaps for
which the counterparties owe the Company on a net basis),
the CDS Spread for the bank counterparty is added to the risk-
free discount rate to determine the estimated credit-adjusted
value. In the case of Cross-Currency Swaps in a liability position
(i.e., those Cross-Currency Swaps for which the Company
owes the counterparties on a net basis), the Company’s CDS
Spread is added to the risk-free discount rate. The changes
in fair value of cash flow hedging derivatives are recorded in
other comprehensive income, to the extent effective, until the
variability of cash flows relating to the hedged asset or liability
is recognized in the consolidated statements of income.
Any hedge ineffectiveness is recognized in the consolidated
statements of income immediately.
The Company uses derivative financial instruments to manage
risks from fluctuations in exchange rates and interest rates.
From time-to-time, these instruments include Cross-Currency
Swaps, interest rate exchange agreements, foreign exchange
forward contracts and, foreign exchange option agreements.
All such instruments are only used for risk management
purposes.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
When hedge accounting is applied, the Company formally
documents the relationship between derivative instruments
and the hedged items, as well as its risk management objective
and strategy for undertaking various hedge transactions. At
the instrument’s inception, the Company also formally assesses
whether the derivatives are highly effective at reducing or
modifying interest rate or foreign exchange risk related to
the future anticipated interest and principal cash outflows
associated with the hedged item. Effectiveness requires a high
correlation of changes in fair values or cash flows between the
hedged item and the hedging item. On a quarterly basis, the
Company confirms that the derivative instruments continue to
be highly effective at reducing or modifying interest rate or
foreign exchange risk associated with the hedged items.
The Company also assesses the Cross-Currency Swaps
accounted for as hedges for ineffectiveness on a quarterly
basis. The measurement of ineffectiveness is recorded directly
in the consolidated statements of income.
During the development and pre-operating phases of new
products and businesses, related incremental costs are deferred
and amortized on a straight-line basis over periods of up to five
years.
(M) PENSION BENEFITS :
The Company accrues its pension plan obligations as employees
render the services necessary to earn the pension. The Company
uses a discount rate determined by reference to market yields at
the measurement dates to measure the accrued pension benefit
obligation and uses the corridor method to amortize actuarial gains
or losses (such as changes in actuarial assumptions and experience
gains or losses) over the average remaining service life of the
employees. under the corridor method, amortization is recorded
only if the accumulated net actuarial gains or losses exceed 10%
of the greater of accrued pension benefit obligation and the fair
value of the plan assets at the beginning of the year.
The Company uses the following methods and assumptions for
pension accounting:
For those instruments that do not meet the above criteria,
changes in their fair value are recorded in the consolidated
statements of income.
(i)
(I) C APITAL DISCLOSURES :
Effective January 1, 2008, the Company adopted the new
recommendations of CICA Handbook Section 1535, Capital
Disclosures (“CICA 1535”). CICA 1535 requires that an entity disclose
information that enables users of its financial statements to
evaluate an entity’s objectives, policies and processes for managing
capital, including disclosures of any externally imposed capital
requirements and the consequences for non-compliance. These
new disclosures are included in note 21.
The cost of pensions is actuarially determined using
the projected benefit method prorated on service and
management’s best estimate of expected plan investment
performance, salary escalation, compensation levels at the
time of retirement and retirement ages of employees. Changes
in these assumptions would impact future pension expense.
(ii)
For the purpose of calculating the expected return on plan
assets, those assets are valued at fair value.
(iii) Past service costs from plan amendments are amortized on a
straight-line basis over the average remaining service period
of employees.
(j) NET INCOME PER SHARE :
The diluted net income per share calculation considers the impact
of employee stock options using the treasury stock method. There
is no dilutive impact of employee stock options after May 28, 2007,
due to the amendment to attach cash settled SARs to all new and
previously granted options.
(N) PROPERT Y, PL ANT AND E qUIPMENT:
PP&E are recorded at cost. During construction of new assets, direct
costs plus a portion of applicable overhead costs are capitalized.
Repairs and maintenance expenditures are charged to operating
expenses as incurred.
(k )
INvENTORIES AND R OGERS R ETAIL RENTAL IN vENTORY:
Inventories are primarily valued at the lower of cost, determined
on a first-in, first-out basis, and net realizable value. Rogers Retail
rental inventory, which includes videocassettes, DVDs and video
games, is amortized to its estimated residual value. The residual
value of Rogers Retail rental inventory is recorded as a charge to
operating expense upon the sale of Rogers Retail rental inventory.
Amortization of Rogers Retail rental inventory is charged to cost of
sales on a diminishing-balance basis over a six-month period.
(L) DEFERRED CHARGES :
The direct costs paid to lenders to obtain revolving credit facilities
are deferred and amortized on a straight-line basis over the life of
the debt to which they relate.
The cost of the initial cable subscriber installation is capitalized.
Costs of all other cable connections and disconnections are
expensed, except for direct incremental installation costs related
to reconnect Cable customers, which are deferred to the extent of
reconnect installation revenues. Deferred reconnect revenues and
expenses are amortized over the related estimated service period.
(O) ACqUIRED PROGR AM RIGHTS :
Acquired program rights for broadcasting are carried at the lower
of cost less accumulated amortization, and net realizable value.
Acquired program rights and the related liabilities are recorded
on the consolidated balance sheets when the licence period begins
and the program is available for use. The cost of acquired program
rights is amortized over the expected performance period of the
related programs. Net realizable value of acquired program rights
is assessed using an industry standard methodology.
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
91
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(P) GOODwILL AND INTANGIBLE ASSETS :
(i) Goodwill:
Goodwill is the residual amount that results when the purchase
price of an acquired business exceeds the sum of the amounts
allocated to the tangible and intangible assets acquired,
less liabilities assumed, based on their fair values. When the
Company enters into a business combination, the purchase
method of accounting is used. Goodwill is assigned, as of the
date of the business combination, to reporting units that are
expected to benefit from the business combination.
Goodwill is not amortized but instead is tested for impairment
annually or more frequently if events or changes in
circumstances indicate that the asset might be impaired. The
impairment test is carried out in two steps. In the first step,
the carrying amount of the reporting unit, including goodwill,
is compared with its fair value. When the fair value of the
reporting unit exceeds its carrying amount, goodwill of the
reporting unit is not considered to be impaired and the second
step of the impairment test is unnecessary. The second step
is carried out when the carrying amount of a reporting unit
exceeds its fair value, in which case, the implied fair value
of the reporting unit’s goodwill, determined in the same
manner as the value of goodwill is determined in a business
combination, is compared with its carrying amount to measure
the amount of the impairment loss, if any.
(ii)
Intangible assets:
Intangible assets acquired in a business combination are
recorded at their fair values. Intangible assets with finite
useful lives are amortized over their estimated useful lives and
are tested for impairment, as described in note 2(q). Intangible
assets having an indefinite life, being spectrum and broadcast
licences, are not amortized but are tested for impairment on
an annual or more frequent basis by comparing their fair value
to their carrying amount. An impairment loss on an indefinite
life intangible asset is recognized when the carrying amount
of the asset exceeds its fair value.
Intangible assets with finite useful lives are amortized on a
straight-line basis over their estimated useful lives as follows:
Brand name – Rogers
Brand name – Fido
Brand name – Citytv
Subscriber bases
Roaming agreements
Dealer networks
Marketing agreement
20 years
5 years
5 years
2¼ to 4²⁄ ³ years
12 years
4 years
5 years
The Company tested goodwill and intangible assets with indefinite
lives for impairment during 2008 and recorded a writedown of
$154 million related to the goodwill of the conventional television
reporting unit and $75 million related to the Citytv broadcast
licence (note 11(a)). No impairment of goodwill and intangible
assets with indefinite lives was recorded in 2007.
IMPAIRMENT OF LONG -LIvED ASSETS :
(q)
The Company reviews long-lived assets, which include PP&E and
intangible assets with finite useful lives, for impairment annually
or more frequently if events or changes in circumstances indicate
that the carrying amount may not be recoverable. If the sum of
the undiscounted future cash flows expected to result from the
use and eventual disposition of a group of assets is less than its
carrying amount, it is considered to be impaired. An impairment
loss is measured as the amount by which the carrying amount of
the group of assets exceeds its fair value.
The Company tested long-lived assets with finite useful lives
for impairment during 2008 and recorded a write-down of
$51 million related to the Citytv CRTC commitments asset (note 13)
and $14 million related to the Citytv brand name (note 11(a)(ii)). No
impairment was recorded in 2007.
(R ) ASSET RETIREMENT OBLIGATIONS:
Asset retirement obligations are legal obligations associated with
the retirement of PP&E that result from their acquisition, lease,
construction, development or normal operations. The Company
records the estimated fair value of a liability for an asset retirement
obligation in the year in which it is incurred and when a reasonable
estimate of fair value can be made. The fair value of a liability for
an asset retirement obligation is the amount at which that liability
could be settled in a current transaction between willing parties,
that is, other than in a forced or liquidation transaction and, in the
absence of observable market transactions, is determined as the
present value of expected cash flows. The Company subsequently
allocates the asset retirement cost to expense using a systematic
and rational method over the asset’s useful life, and records the
accretion of the liability as a charge to operating expenses.
(S) USE OF ESTIMATES :
The preparation of financial statements requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the years. Actual results
could differ from those estimates.
Key areas of estimation, where management has made difficult,
complex or subjective judgments, often as a result of matters
that are inherently uncertain, include the allowance for doubtful
accounts and certain accrued liabilities, the ability to use income
tax loss carryforwards and other future income tax assets and
liabilities, capitalization of internal labour and overhead, useful
lives of depreciable assets and intangible assets with finite useful
lives, discount rates and expected returns on plan assets affecting
pension expense and the deferred pension asset, estimation of
credit spreads for determination of the fair value of derivative
instruments and the recoverability of long-lived assets, goodwill
and intangible assets, which require estimates of future cash
flows and discount rates. For business combinations, key areas of
estimation and judgment include the allocation of the purchase
price and related integration and severance costs.
92
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Significant changes in the assumptions, including those with
respect to future business plans and cash flows, could materially
change the recorded carrying amounts.
( T ) RECENT C ANADIAN ACCOUNTING PRONOUNCEMENTS :
(i) Goodwill and intangible assets:
In 2008, the CICA issued Handbook Section 3064, Goodwill and
Intangible Assets (“CICA 3064”). CICA 3064, which replaces
Section 3062, Goodwill and Other Intangible Assets, and
Section 3450, Research and Development Costs, establishes
standards for the recognition, measurement and disclosure of
goodwill and intangible assets. This new standard is effective
for the Company’s interim and annual consolidated financial
statements commencing January 1, 2009. The Company is
assessing the impact of the new standard on its consolidated
financial statements.
(ii)
In October of 2008, the CICA issued Handbook Section 1582,
Business Combinations (“CICA 1582”), concurrently with
Handbook Sections 1601, Consolidated Financial Statements
(“CICA 1601”), and 1602, Non-controlling Interests (“CICA 1602”).
CICA 1582, which replaces Handbook Section 1581, Business
Combinations, establishes standards for the measurement of
a business combination and the recognition and measurement
of assets acquired and liabilities assumed. CICA 1601, which
replaces Handbook Section 1600, carries forward the
existing Canadian guidance on aspects of the preparation of
consolidated financial statements subsequent to acquisition
other than non-controlling interests. CICA 1602 establishes
guidance for the treatment of non-controlling interests
subsequent to acquisition through a business combination.
These new standards are effective for the Company’s interim
and annual consolidated financial statements commencing
on January 1, 2011 with earlier adoption permitted as of the
beginning of a fiscal year. The Company is assessing the impact
of the new standards on its consolidated financial statements.
(iii) International Financial Reporting Standards (“IFRS” ):
In 2006, the Canadian Accounting Standards Board (“AcSB”)
published a new strategic plan that significantly affects financial
reporting requirements for Canadian public companies. The
AcSB strategic plan outlines the convergence of Canadian GAAP
with IFRS over an expected five-year transitional period.
In February 2008, the AcSB confirmed that IFRS will be
mandatory in Canada for profit-oriented publicly accountable
entities for fiscal periods beginning on or after January 1, 2011.
The Company’s first annual IFRS financial statements will be
for the year ending December 31, 2011 and will include the
comparative period of 2010. Starting in the first quarter of 2011,
the Company will provide unaudited consolidated financial
information in accordance with IFRS including comparative
figures for 2010.
The Company has completed a preliminary assessment of the
accounting and reporting differences under IFRS as compared
to Canadian GAAP, however, management has not yet
finalized its determination of the impact of these differences
on the consolidated financial statements. As this assessment is
finalized, the Company intends to disclose such impacts in its
future consolidated financial statements.
In the period leading up to the changeover, the AcSB will
continue to issue accounting standards that are converged
with IFRS, thus mitigating the impact of adopting IFRS at the
changeover date. The International Accounting Standards
Board will also continue to issue new accounting standards
during the conversion period and, as a result, the final impact
of IFRS on the Company’s consolidated financial statements
will only be measured once all the IFRS applicable at the
conversion date are known.
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
93
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. SEGMENTED INFORMATION
(A) OPER ATING SEGMENTS :
The accounting policies of the segments are the same as those
described in the significant accounting policies (note 2). The
Company discloses segment operating results based on income
before stock option plan amendment, integration and restructuring,
stock-based compensation expense (recovery), adjustment for CRTC
Part II fees decision, contract renegotiation fee, depreciation and
amortization, impairment losses on goodwill, intangible assets and
other long-term assets, interest on long-term debt, debt issuance
costs, loss on repayment of long-term debt, foreign exchange gain
(loss), change in fair value of derivative instruments, other income
(expense) and income taxes, consistent with internal management
reporting. This measure of segment operating results differs from
operating income in the consolidated statements of income. All of
the Company’s reportable segments are substantially in Canada.
wireless
Cable
2008
Corporate
items and Consolidated
totals
Media eliminations
Wireless
Cable
2007
Corporate
items and Consolidated
totals
Media eliminations
$
6,335 $ 3,809 $
1,005
691
197
466
1,496 $
178
269
(305) $ 11,335 $
(77)
(92)
1,303
1,334
5,503 $
703
653
3,558 $
186
519
1,317 $
173
226
(255) $ 10,123
961
(101)
1,322
(76)
1,833
2,806
–
14
1,913
1,233
–
20
907
142
–
11
(15)
4,638
(121)
–
6
4,060
–
51
(5)
(32)
(17)
(46)
(100)
–
–
25
–
2,797
588
1,220
791
6
–
142
76
–
–
31
–
(81)
305
4,078
1,760
2,532
560
1,558
2,589
46
–
11
–
–
1,837
1,016
113
38
11
–
52
802
737
742
176
84
–
10
–
–
82
52
–
4,137
(78)
209
–
3,703
452
38
30
–
–
62
–
52
(317)
254
3,099
1,603
–
–
294
–
294
–
–
–
–
–
$
2,209 $
429 $
(228) $
(386)
1,972 $
65 $
30 $
(571)
2,024 $
(575)
(16)
–
(99)
64
28
1,496
(579)
–
(47)
54
(34)
(4)
$
1,426
$
886
Operating revenue
Cost of sales
Sales and marketing
Operating, general and
administrative*
Stock option plan amendment
Integration and restructuring
Stock-based compensation
expense (recovery)*
Adjustment for CRTC Part II
fees decision*
Contract renegotiation fee*
Depreciation and amortization
Impairment losses on goodwill,
intangible assets and other
long-term assets
Operating income (loss)
Interest on long-term debt
Debt issuance costs
Loss on repayment of
long-term debt
Foreign exchange gain (loss)
Change in fair value
of derivative instruments
Other income (expense), net
Income before income taxes
Additions to PP&E
Goodwill
Total assets
$
$
$
929 $
886 $
81 $
125 $
2,021 $
822 $
814 $
77 $
83 $ 1,796
1,140 $
982 $
902 $
– $
3,024 $
1,140 $
926 $
961 $
– $ 3,027
8,357 $
5,153 $
1,941 $
1,642 $ 17,093 $
6,747 $
5,211 $
2,042 $
1,325 $ 15,325
*Included with operating, general and administrative operating expenses in consolidated statements of income.
94
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In addition, Cable consists of the following reportable segments:
Cable
Operations
Rogers
Business
Solutions
Rogers
Corporate
items and
Retail eliminations
Cable
Total
Cable Operations
Rogers
Business
Solutions
Corporate
items and
Rogers
Retail eliminations
2008
2007
Total
Cable
$
2,878 $
–
248
526 $
–
26
417 $
197
192
(12) $
–
–
3,809 $
197
466
2,603 $
–
257
571 $
–
75
393 $
186
187
(9) $ 3,558
186
–
519
–
484
24
(9)
1,837
1,459
441
25
(12)
1,913
1,171
–
9
(30)
25
–
1,167
59
–
6
(1)
–
–
54
3
–
5
(1)
–
–
(1)
–
–
–
–
–
–
–
1,233
–
20
(32)
25
–
1,220
791
$
429
1,338
1,008
106
9
10
–
52
831
12
2
29
–
–
–
(4)
5
–
1
–
–
(19)
(10)
829 $
36 $
982 $
– $
21 $
– $
– $
– $
886 $
710 $
982 $
926 $
83 $
– $
21 $
– $
–
–
–
–
–
–
–
$
– $
– $
1,016
113
38
11
–
52
802
737
65
814
926
Operating revenue
Cost of sales
Sales and marketing
Operating, general
and administrative*
Stock option plan amendment*
Integration and restructuring
Stock-based expense (recovery) *
Adjustment for CRTC Part II
fees decision*
Contract renegotiation fee*
Depreciation and amortization
Operating income (loss)
Additions to PP&E
Goodwill
Total assets
$
$
$
4,003 $
1,210 $
265 $
(325) $
5,153 $
3,330 $
1,723 $
257 $
(99) $
5,211
*Included with operating, general and administrative operating expenses in consolidated statements of income.
(B) PRODUC T RE vENUE:
Revenue is comprised of the following:
Wireless:
Postpaid
Prepaid
One-way messaging
Network revenue
Equipment sales
Cable:
Cable Operations
Rogers Business Solutions (“RBS”)
Rogers Retail
Intercompany eliminations
Media:
Advertising
Circulation and subscription
Retail
Blue Jays/Sports Entertainment
Other
Corporate items and intercompany eliminations
2008
2007
$
5,548 $ 4,868
273
13
285
10
5,843
492
6,335
2,878
526
417
(12)
5,154
349
5,503
2,603
571
393
(9)
3,809
3,558
758
184
276
198
80
629
164
282
172
70
1,496
(305)
1,317
(255)
$ 11,335 $ 10,123
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
95
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. BUSINESS COMBINATIONS AND DI vESTITURES
(A) 20 08 ACqUISITIONS AND DI vESTITURES
(i) Outdoor Life Network:
The goodwill has been allocated to the Cable reporting
segment and is not tax deductible.
On July 31, 2008, the Company acquired the remaining two-
thirds of the shares of Outdoor Life Network that it did not
already own, for cash consideration of $39 million. The
acquisition was accounted for using the purchase method
with the results of operations consolidated with those of the
Company effective July 31, 2008. The purchase price allocation
is preliminary pending finalization of valuations of the net
identifiable assets acquired. The preliminary estimated fair
values of the assets acquired and liabilities assumed are as
follows:
(iii) channel m:
On April 30, 2008, the Company acquired the assets of
Vancouver multicultural television station channel m, from
Multivan Broadcast Corporation, for cash consideration of
$61 million. The acquisition was accounted for using the
purchase method with the results of operations consolidated
with those of the Company effective April 30, 2008. The fair
values of the assets acquired and liabilities assumed, which
were finalized during 2008 are as follows:
Purchase price
Current assets
Current liabilities
Preliminary fair value of net assets acquired
Goodwill
$
$
$
$
39
11
(3)
8
31
The goodwill has been allocated to the Media reporting
segment and is not tax deductible.
(ii) Aurora Cable T v Limited:
On June 12, 2008, the Company acquired 100% of the
outstanding shares of Aurora Cable TV Limited (“Aurora
Cable”) for cash consideration of $80 million, including a
$16 million deposit paid during the first quarter of 2008.
In addition, the Company contributed $10 million to
simultaneously pay down certain credit facilities of Aurora
Cable. Aurora Cable provides cable television, Internet and
telephony services in the Town of Aurora and the community
of Oak Ridges, in Richmond Hill, Ontario. The acquisition was
accounted for using the purchase method with the results of
operations consolidated with those of the Company effective
June 12, 2008. The fair values of the assets acquired and
liabilities assumed, which were finalized during 2008 are as
follows:
Purchase price
Current assets
Subscriber base
PP&E
Current liabilities
Future income tax liabilities
Credit facilities
Fair value of net assets acquired
Goodwill
$
$
$
$
80
1
13
31
(3)
(8)
(10)
24
56
Purchase price
Current assets
Broadcast licence
PP&E
Current liabilities
Fair value of net assets acquired
Goodwill
$
$
$
$
$
61
5
9
6
(7)
13
48
The goodwill has been allocated to the Media reporting
segment and is tax deductible.
(iv) CIk Z-FM k itchener:
On January 27, 2008, the Company acquired the radio assets of
CIKZ-FM Kitchener in exchange for: the net assets of CICx-FM
Orillia; the redemption of an investment in the shares of the
Kitchener station of $4 million; and $4 million in cash. The
transaction was accounted for using the purchase method
with the results of operations consolidated with those of the
Company effective January 27, 2008.
(v) Other:
During 2007, the Company announced its intention to divest
of the assets of two television stations in British Columbia and
Manitoba for approximately $6 million as part of the Canadian
Radio-television and Telecommunication Commission (“CRTC”)
approval to secure the Citytv acquisition. The transaction to
divest these stations received CRTC approval on March 31, 2008
and the transaction closed on May 25, 2008.
During 2008, the Company made various other acquisitions,
accounted for by the purchase method, for cash consideration
of approximately $4 million.
96
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During 2008, the Company announced that it had reached
an agreement to increase its ownership of K-Rock 1057 Inc.
to 100%. This transaction is subject to CRTC approval and is
expected to close in 2009.
During 2008, the Company received CRTC approval of an
agreement with Newfoundland Capital Corporation (“NCC”)
to exchange its CIGM AM radio licence in Sudbury, Ontario for
NCC’s CFDS AM licence in Halifax, Nova Scotia and to convert
both of the AM licences to FM. In addition to the radio station
exchange, the Company will pay cash consideration of $5 million.
The transaction is expected to close in 2009.
(B) 20 07 ACqUISITIONS:
(i)
Futureway Communications Inc.:
On June 22, 2007, the Company acquired the remaining 80%
of the common shares that it did not already own and the
outstanding stock options of Futureway Communications
Inc. (“Futureway”) for cash consideration of $38 million. In
addition, the Company contributed $48 million to Futureway to
simultaneously repay obligations under capital leases, advances
from affiliated companies and to terminate a services agreement.
The total cash outlay for the acquisition was $86 million. At the
same time, Cable entered into a marketing agreement with the
former controlling shareholder of Futureway that entitles the
Company to preferred marketing arrangements in certain new
residential housing developments in the Greater Toronto Area.
The acquisition was accounted for using the purchase method
with the results of operations consolidated with those of the
Company effective June 22, 2007. The fair values of the assets
acquired and liabilities assumed in the Futureway acquisition
are as follows:
Current assets
PP&E
Marketing agreement
Other intangible assets
Future income tax assets
Current liabilities
Other liabilities
Fair value of net assets acquired
(ii) Citytv:
$
$
4
4
52
7
22
(3)
(48)
38
On October 31, 2007, the Company acquired certain real
properties and 100% of the shares of the legal entities holding
the operations of the Citytv network of five television stations
in Canada, from CTVglobemedia Inc. for cash consideration of
$405 million, including acquisition costs. The acquisition was
accounted for using the purchase method, with the results of
operations consolidated with those of the Company effective
October 31, 2007.
During 2008, the Company finalized the purchase price
allocation of the Citytv acquisition and the Company paid
an additional $3 million as settlement for a working capital
adjustment which increased the purchase price paid to $408
million. In addition to the working capital adjustment,
valuations of certain tangible and intangible assets acquired
were completed. The adjustments had the following effects on
the purchase price allocation from that recorded and disclosed
in the 2007 consolidated financial statements:
As at
December 31,
2007 Adjustments
Final
purchase
price
allocation
Purchase price
Current assets
Program inventory
PP&E
Brand name
Broadcast licence
Advertising bookings
Future income tax liabilities
Current liabilities
Other liabilities
Fair value of net assets acquired
Goodwill
405 $
3 $
408
$
$
33 $
25
32
26
86
–
(15)
(32)
(14)
(2) $
(16)
18
–
–
6
–
(16)
6
$
$
141 $
(4) $
264 $
7 $
31
9
50
26
86
6
(15)
(48)
(8)
137
271
The goodwill has been allocated to the Media reporting segment
and is not tax deductible.
(iii) Other:
On January 1, 2007, the Company acquired five Alberta radio
stations for cash consideration of $43 million, including
acquisition costs. The acquisition was accounted for using the
purchase method, with $13 million allocated to net tangible
assets acquired, $29 million allocated to broadcast licences
acquired and $1 million allocated to goodwill, which is tax
deductible, within the Media reporting segment.
During 2007, the Company made various other acquisitions for
cash consideration of approximately $3 million.
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
97
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5.
INvESTMENT IN j OINT vENTURES
The Company has contributed certain assets to joint ventures
involved in the provision of wireless broadband Internet service and
in certain mobile commerce initiatives (note 11(c)). As at December
31, 2008 and 2007 and for the years then ended, proportionately
consolidating these joint ventures resulted in the following increases
(decreases) in the accounts of the Company:
Current assets
Long-term assets
Current liabilities
Revenue
Expenses
Net income (loss) for the year
2008
2007
$
7 $
68
4
–
29
(29)
7
73
6
–
25
(25)
In March 2007, the Company contributed its 2.3 GHz and 3.5 GHz
spectrum licences with a carrying value of $11 million to a 50%
owned joint venture for non-cash consideration of $58 million.
Accordingly, the carrying value of spectrum licences was reduced
by $5 million in 2007. A deferred gain of $24 million, being the
portion of the excess of fair value over carrying value related to
the other non-related venturer’s interest in the spectrum licences
contributed by the Company, was recorded on contribution of
these spectrum licences. This deferred gain is recorded in other
long-term liabilities and is being amortized to income over seven
years, of which $4 million was recognized in 2008 (2007 - $2 million).
In addition to a cash contribution of $8 million, the other venturer
also contributed its 2.3 GHz and 3.5 GHz spectrum licences valued
at $50 million to the joint venture. The Company recorded an
increase in spectrum licences and cash of $25 million and $4 million,
respectively, related to its proportionate share of the contribution
by the other venturer.
6.
INTEGRATION AND RESTRUCTURING E xPENSES
During 2008, the Company incurred $38 million (2007 – nil) of
restructuring expenses related to severances resulting from the
targeted restructuring of its employee base across all segments to
improve its cost structure in light of the declining economic conditions.
Included in accounts payable and accrued liabilities is $35 million as at
December 31, 2008, which will be paid in 2009 and 2010.
During 2008, the Company incurred integration expenses of
$8 million (2007 - $14 million) related to acquisitions.
During 2008, the Company incurred $1 million (2007 - $24 million) of
restructuring expenses related to RBS, which is related to severances
resulting from staff reductions to reflect a reduction in customer
acquisition efforts related to enterprise and larger business
segments. Included in accounts payable and accrued liabilities as
at December 31, 2008, is $2 million (2007 - $12 million) related to the
severances, which will be paid in 2009.
During 2008, the Company incurred $4 million (2007 – nil) related
to the closure of 18 underperforming store locations, primarily
located in the province of Ontario.
98
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7.
INCOME TA xES
The income tax effects of temporary differences that give rise to
significant portions of future income tax assets and liabilities are
as follows:
Future income tax assets:
Non-capital income tax loss carryforwards
Capital loss carryforwards
Deductions relating to long-term debt and other transactions denominated in foreign currencies
Investments
PP&E and inventory
Liability for stock-based compensation
Ontario harmonization credit
Other deductible differences
Total future income tax assets
Less valuation allowance
Future income tax liabilities:
PP&E and inventory
Investments
Goodwill and intangible assets
Other taxable differences
Total future income tax liabilities
Net future income tax asset
Less current portion
Long-term future income tax liabilities
2008
2007
$
377 $
37
39
13
–
81
65
149
761
144
617
(126)
–
(367)
(22)
680
16
100
–
11
148
–
131
1,086
119
967
–
(6)
(441)
(30)
(515)
(477)
102
446
490
594
$
(344) $
(104)
In assessing the realizability of future income tax assets,
management considers whether it is more likely than not that
some portion or all of the future income tax assets will be realized.
The ultimate realization of future income tax assets is dependent
upon the generation of future taxable income during the years
in which the temporary differences are deductible. Management
considers the scheduled reversals of future income tax liabilities,
the character of the future income tax assets and available tax
planning strategies in making this assessment.
To the extent that management believes that the realization of
future income tax assets does not meet the more likely than not
realization criterion, a valuation allowance is recorded against the
future income tax assets.
The valuation allowance at December 31, 2008, includes $85 million
of foreign future income tax assets, $37 million relating to capital
loss carryforwards and $22 million relating to unrealized capital
losses on u.S. dollar-denominated debt and certain investments.
Income tax expense varies from the amounts that would be
computed by applying the statutory income tax rate to income
before income taxes for the following reasons:
Statutory income tax rate
Computed income tax expense
Increase (decrease) in income taxes resulting from:
Difference between rates applicable to subsidiaries
Change in valuation allowance
Vidéotron termination payment
Effect of tax rate changes
Stock-based compensation
Ontario harmonization credit
Impairment losses on goodwill and intangible assets not deductible for tax
Benefits relating to changes to prior year tax filing positions and other items
Income tax expense
2008
2007
32.7%
35.2%
$
466 $
312
(2)
19
–
(33)
5
(65)
51
(17)
(12)
(20)
(25)
47
(17)
–
–
(36)
$
424 $
249
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
99
During 2007, the Company recorded a future income tax recovery
of $20 million relating to a decrease in the valuation allowance
recorded primarily in respect of realized and unrealized capital
losses.
As at December 31, 2008, the Company has the following Canadian
non-capital income tax losses available to reduce future years’
income for income tax purposes:
Income tax losses expiring in the year ending December 31:
2009
2010
2011 – 2013
Thereafter
$
24
19
–
868
$
911
In addition to the amounts above, as at December 31, 2008, the
Company had approximately $162 million in non-capital income tax
losses in foreign subsidiaries expiring between 2021 and 2028.
As at December 31, 2008, the Company had approximately
$263 million of available capital losses to offset future capital
gains.
2008
2007
$
1,002 $
637
638
–
638
638
4
642
$
1.57 $
1.57
1.00
0.99
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In 2000, the Company received a $241 million payment (the
“Termination Payment”) from Le Group Vidéotron Ltée
(“Vidéotron”) in respect of the termination of a merger agreement
between the Company and Vidéotron. In 2006, the Company
received a Notice of Reassessment from the Canada Revenue
Agency (“CRA”) in respect of the Termination Payment. The
Company challenged the Notice of Reassessment and, in 2006,
recorded a future income tax charge of $25 million based on the
expected resolution of this issue. During the year ended December
31, 2007, the Company was advised by the CRA that its challenge
was successful and, as a result, a future income tax recovery of
$25 million was recorded to reverse the charge recorded in 2006.
During 2008, the Company recorded the benefit of an income tax
credit of $65 million arising from the harmonization of the Ontario
provincial income tax system with the Canadian federal income tax
system. The resulting income tax credit will be available to reduce
future Ontario income taxes over the next five years.
During 2008, the Company recorded an increase in its valuation
allowance of $25 million. Of this increase, $19 million relates to
future tax assets in foreign jurisdictions and was recorded as an
increase in income tax expense in the statement of income. The
remaining $6 million relates primarily to unrealized losses on
investments and financial instruments and was charged to other
comprehensive income.
8. NET INCOME PER SHARE
The following table sets forth the calculation of basic and diluted
net income per share:
Numerator:
Net income for the year, basic and diluted
Denominator (in millions):
Weighted average number of shares outstanding – basic
Effect of dilutive securities:
Employee stock options
Weighted average number of shares outstanding – diluted
Net income per share:
Basic
Diluted
Employee stock options are not considered dilutive after the
May 28, 2007 amendment to stock option plans (note 19(a)(i)).
100 ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. OTHER CURRENT ASSETS
Inventories
Prepaid expenses
Acquired program rights
Rogers Retail rental inventory
Deferred compensation
Other
2008
2007
$
256 $
99
43
29
12
3
110
86
45
32
10
21
$
442 $
304
Amortization expense for Rogers Retail rental inventory is
charged to cost of sales and amounted to $43 million in 2008
(2007 – $46 million). The costs of acquired program rights are
amortized to operating, general and administrative expenses over
the expected performances of the related programs and amounted to
$103 million in 2008 (2007 – $46 million). Cost of sales includes
$1,260 million (2007 – $915 million) of inventory costs.
10. PROPERTY, PLANT AND E qUIPMENT
Details of PP&E are as follows:
Land and buildings
Towers, head-ends and transmitters
Distribution cable and subscriber drops
Network equipment
Wireless network radio base station equipment
Computer equipment and software
Customer equipment
Leasehold improvements
Equipment and vehicles
Accumulated
depreciation
Cost
2008
Net book
value
2007
Accumulated
depreciation
Cost
Net book
value
$
762 $
1,179
4,874
5,320
1,459
2,424
1,260
349
825
156 $
705
2,802
2,805
876
1,730
787
193
500
606 $
474
2,072
2,515
583
694
473
156
325
662 $
998
4,562
4,749
1,250
2,068
1,068
316
754
133 $
566
2,542
2,393
770
1,518
614
175
427
529
432
2,020
2,356
480
550
454
141
327
$ 18,452 $ 10,554 $
7,898 $ 16,427 $
9,138 $
7,289
Depreciation expense for 2008 amounted to $1,456 million (2007 –
$1,303 million).
PP&E not yet in service and, therefore, not depreciated at December 31,
2008 amounted to $853 million (2007 - $614 million).
.
11. GOODwILL AND INTANGIBLE ASSETS
IMPAIRMENT:
(A)
(i) Goodwill:
In the fourth quarter of 2008, the Company determined that
the fair value of its conventional television reporting unit
was lower than its carrying value. This primarily resulted
from weakening of industry expectations in the conventional
television business and declines in advertising revenues. As a
result, the Company recorded a goodwill impairment charge
of $154 million related to its conventional television reporting
unit, which is included in the Company’s Media operating
segment.
In assessing whether or not there is an impairment, the
Company uses a combination of approaches to determine the
fair value of a reporting unit, including both the discounted
cash flows and market approaches. If there is an indication of
impairment, the Company uses a discounted cash flow model
in estimating the amount of impairment. under the discounted
cash flows approach, the Company estimates the discounted
future cash flows for three to seven years, depending on the
reporting unit, and a terminal value. The future cash flows are
based on the Company’s estimates and include consideration
for expected future operating results, economic conditions and
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT 101
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
a general outlook for the industry in which the reporting unit
operates. The discount rates used by the Company consider
debt to equity ratios and certain risk premiums. The terminal
value is the value attributed to the reporting unit’s operations
beyond the projected time period of 2011 or 2015 using a
perpetuity rate based on expected economic conditions and a
general outlook for the industry. under the market approach,
the Company estimates the fair value of the reporting unit by
multiplying normalized earnings before interest, income taxes
and depreciation and amortization by multiples based on
market inputs.
The Company has made certain assumptions for the discount and
terminal growth rates to reflect variations in expected future
cash flows. These assumptions may differ or change quickly
depending on economic conditions or other events. Therefore,
it is possible that future changes in assumptions may negatively
impact future valuations of reporting units and goodwill which
would result in further goodwill impairment losses.
(ii)
Intangible assets:
In the fourth quarter of 2008, the Company recorded an
impairment charge of $75 million relating to the Citytv
broadcast licences. using the Greenfield income approach
(B) GOOD wILL:
A summary of the changes to goodwill is as follows:
Opening balance
Acquisition of Outdoor Life Network (note 4(a)(i))
Acquisition of Aurora Cable (note 4(a)(ii))
Acquisition of channel m (note 4(a)(iii))
Other acquisitions and adjustments
Adjustments to Citytv purchase price allocation (note 4(b)(ii))
Reduction in valuation allowance for acquired future income tax assets
Impairment charge on conventional television reporting unit (note 11(a)(i))
(in which the value is determined based on the present value
of required resources and eventual returns of the broadcast
licences), and replacement cost, the Company determined the
fair value of the Citytv broadcast licences to be lower than
their carrying value.
In addition, the Company recorded an impairment charge of
$14 million related to the Citytv brand name as the Citytv asset
group was determined to be impaired and its carrying value
exceeded its fair value. The Company determined the fair value
of the Citytv brand name using the Capitalized Royalty Method.
The fair values of the broadcast licences and brand name
declined primarily as a result of the weakening of industry
expectations in the conventional television business and
declines in advertising revenues.
The Company has made certain assumptions within the
Greenfield income approach and Capitalized Royalty Method
which may differ or change quickly depending on economic
conditions or other events. Therefore, it is possible that
future changes in assumptions may negatively impact future
valuations of intangible assets which would result in further
impairment losses.
$
2008
2007
3,027 $
31
56
48
9
7
–
(154)
2,779
–
–
–
(6)
264
(10)
–
$
3,024 $
3,027
INTANGIBLE ASSETS :
(C )
Details of intangible assets are as follows:
Indefinite life:
Spectrum licences
Broadcast licences
Definite life:
Brand names
Subscriber bases
Roaming agreements
Dealer networks
Wholesale agreement
Marketing agreement
Advertising bookings
Baseball player contracts
102 ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
Cost prior to
impairment Accumulated
amortization
losses
Impairment
losses
(note 11(a)(ii))
Net book
value
Accumulated
amortization
Cost
Net book
value
2008
2007
$
1,929 $
164
– $
–
– $
75
1,929 $
89
921 $
147
– $
–
437
999
523
41
13
52
6
–
158
900
181
41
13
15
6
–
14
–
–
–
–
–
–
–
265
99
342
–
–
37
–
–
437
1,046
523
41
13
52
–
120
116
790
138
32
13
5
–
120
921
147
321
256
385
9
–
47
–
–
$
4,164 $
1,314 $
89 $
2,761 $
3,300 $
1,214 $
2,086
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company participated in the Advanced Wireless Services
spectrum auction in Canada which concluded on July 21, 2008, and
acquired 20 MHz of spectrum across all 13 provinces and territories.
The payments made to Industry Canada for the spectrum during
the year ended December 31, 2008, totalled approximately $1,002
million. In addition, $6 million of incremental costs associated with
the acquisition of the spectrum licences were capitalized, resulting
in a total cost of $1,008 million. This amount has been recorded as
part of the spectrum licences. The Company has determined that
these licences have indefinite lives for accounting purposes and
are, therefore, not being amortized.
Amortization of brand names, subscriber bases, baseball player
contracts, roaming agreements, dealer networks, wholesale
agreements and marketing agreement amounted to $280 million
for the year ended December 31, 2008 (2007 - $282 million).
During 2007, the Company entered into a marketing agreement
with the former controlling shareholder of Futureway (note 4(b)
(i)). The marketing agreement had a fair value of $52 million on
acquisition.
During 2007, brand names increased by $26 million resulting from
the acquisition of Citytv (note 4(b)(ii)).
During 2008, broadcast licences increased by $17 million as a result
of acquisitions and decreased by $75 million to reflect impairment of
the carrying amount of the Citytv broadcast licence (note 11(a)(ii)).
During 2007, broadcast licences increased by $117 million and
subscriber bases by $1 million as a result of acquisitions.
During 2008, brand names decreased by $14 million to reflect
impairment of the carrying amount of the Citytv brand name (note
11(a)(ii)).
During 2008, subscriber bases increased by $13 million resulting
from the acquisition of Aurora Cable (note 4(a)(ii)).
During 2008, the valuation of intangible assets acquired as part of
the Citytv acquisition was finalized (note 4(b)(ii)). This resulted in a
$6 million increase in advertising bookings.
During 2007, the Company contributed its 2.3 GHz and 3.5 GHz
spectrum licences with a carrying value of $11 million to its 50%
owned joint venture (note 5). The Company also recorded an increase
in spectrum licences of $25 million as a result of contributions by the
other venturer, related to the Company’s proportionate share of the
contribution. Accordingly, the carrying value of spectrum licences
was increased by approximately $20 million.
12. INvESTMENTS
Publicly traded companies, at quoted
market value:
Cogeco Cable Inc.
Cogeco Inc.
Other publicly traded companies
Private companies, at cost:
Investments accounted for by the equity method
Number
Description
6,595,675
3,399,800
Subordinate voting Common shares
Subordinate voting Common shares
2008
2007
Carrying
value
Carrying
value
$
228 $
85
6
319
17
7
$
343 $
315
134
16
465
8
12
485
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT 103
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. OTHER LONG-TERM ASSETS
Deferred pension asset
Acquired program rights
Indefeasible right of use agreements
Deferred compensation
Long-term receivables
CRTC commitments
Deferred installation costs
Deferred commissions
Cash surrender value of life insurance
Long-term debt prepayment option
Other
$
2008
2007
62 $
48
31
25
25
24
16
13
10
4
11
39
41
30
29
12
72
18
14
16
13
11
$
269 $
295
Amortization of certain long-term assets for 2008 amounted to
$24 million (2007 – $20 million). Accumulated amortization as at
December 31, 2008, amounted to $76 million (2007 – $77 million).
During 2008, the Company recorded an impairment charge of
$51 million related to CRTC commitments as the carrying value of
the Citytv asset group was determined to be in excess of fair value
during impairment testing (note 11(a)(ii)).
During 2008, the CRTC commitments increased by $24 million,
due to the CRTC grant of two new television licences ($10 million
over seven years) and one new radio station ($1 million over six
years), and the acquisition of channel m ($8 million over seven
years), Outdoor Life Network ($4 million over seven years), and
CIKZ-FM Kitchener ($1 million over seven years). In 2007, the CRTC
commitments increased by $63 million due to the acquisition of five
Citytv stations across Canada ($61 million over seven years) and five
radio stations in Northern Alberta ($2 million over seven years).
The liability for CRTC committed expenditures is recorded upon
granting of the licence with a corresponding asset. The liability is
reduced as the qualifying expenditures are made. The amount of
these liabilities, included in accounts payable and accrued liabilities
and other long-term liabilities, is $83 million at December 31, 2008
(2007 – $87 million). Deferred charges related to these commitments
are being amortized over periods ranging from six to seven years.
104 ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. LONG-TERM DEBT
Corporate:
Bank credit facility
Senior Notes
Senior Notes
Formerly Rogers Wireless Inc.:
Senior Notes
Senior Notes
Senior Notes
Senior Notes
Senior Notes
Senior Subordinated Notes
Fair value increment arising from purchase accounting
Formerly Rogers Cable Inc.:
Senior Notes
Senior Notes
Senior Notes
Senior Notes
Senior Notes
Senior Debentures
Capital leases and other
Less current portion
Due
date
Principal
amount
Interest
rate
2008
2007
Floating $
585 $
2018 $u.S.1,400
u.S. 350
2038
6.80%
7.50%
1,714
429
1,240
–
–
2011
2011
2012
2014
2015
2012
u.S. 490
460
u.S. 470
u.S. 750
u.S. 550
u.S. 400
9.625%
7.625%
7.25%
6.375%
7.50%
8.00%
2011
2012
2013
2014
2015
2032
175
u.S. 350
u.S. 350
u.S. 350
u.S. 280
u.S. 200
7.25%
7.875%
6.25%
5.50%
6.75%
8.75%
Various
600
460
575
918
673
490
12
175
429
429
429
343
245
1
484
460
464
741
543
395
17
175
346
346
346
277
198
1
8,507
1
6,033
1
$
8,506 $
6,032
ISSUANCE OF S ENIOR N OTES:
(A)
On August 6, 2008, the Company issued u.S. $1.4 billion of 6.80%
Senior Notes which mature on August 15, 2018 and u.S. $350 million
of 7.50% Senior Notes which mature on August 15, 2038. Each of
these notes is redeemable, in whole or in part, at the Company’s
option, at any time, subject to a certain prepayment premium. Debt
issuance costs of $16 million related to this issuance were incurred
and expensed in 2008. Simultaneously, the Company entered into
Cross-Currency Swaps (note 15(d)(iii)).
(B) REORGANIZ ATION OF LONG -TERM DEBT :
On June 29, 2007, the $1 billion Cable bank credit facility, the $700
million Wireless bank credit facility and the $600 million Media
bank credit facility were cancelled and the Company entered into a
new unsecured $2.4 billion bank credit facility, the initial proceeds
of which were used to repay and cancel each of the Cable, Wireless
and Media bank credit facilities.
intracompany amalgamation does not impact the consolidated
results previously reported by the Company. In addition, the
operating subsidiaries of Rogers Cable Inc. and Rogers Wireless Inc.
were not part of and were not impacted by the amalgamation.
As a result of the amalgamation, on July 1, 2007, Rogers
Communications Inc. assumed all of the rights and obligations
under all of the outstanding Rogers Cable Inc. and Rogers
Wireless Inc. public debt indentures and Cross-Currency Swaps.
As part of the amalgamation process, on June 29, 2007, Rogers
Cable Inc. and Rogers Wireless Inc. released all security provided
by bonds issued under the Rogers Cable Inc. deed of trust and the
Rogers Wireless Inc. deed of trust for all of the then-outstanding
Rogers Cable Inc. and Rogers Wireless Inc. senior public debt and
Cross-Currency Swaps. As a result, none of the senior public debt
or Cross-Currency Swaps remain secured by such bonds effective
as of June 29, 2007.
On July 1, 2007, the Company completed an intracompany
amalgamation of RCI and certain of its wholly owned subsidiaries,
including Rogers Cable Inc. and Rogers Wireless Inc. The
amalgamated entity continues as Rogers Communications Inc. and
Rogers Cable Inc. and Rogers Wireless Inc. are no longer separate
corporate entities and have ceased to be reporting issuers. This
As a result of these actions, the outstanding public debt and
Cross-Currency Swaps and the new $2.4 billion bank credit facility
are unsecured obligations of Rogers Communications Inc. The
Rogers Communications Inc. public debt originally issued by
Rogers Cable Inc. has Rogers Cable Communications Inc. (“RCCI”),
a wholly owned subsidiary, as a co-obligor and Rogers Wireless
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT 105
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Partnership (“RWP”), a wholly owned subsidiary, as an unsecured
guarantor while the Rogers Communications Inc. public debt
originally issued by Rogers Wireless Inc. has RWP as a co-obligor
and RCCI as an unsecured guarantor. Similarly, RCCI and RWP have
provided unsecured guarantees for the new bank credit facility and
the Cross-Currency Swaps. Accordingly, Rogers Communications
Inc.’s bank debt, senior public debt and Cross-Currency Swaps now
rank pari passu on an unsecured basis. The Company’s subordinated
public debt remains subordinated to its senior debt.
(C ) BANk CREDIT FACILIT Y :
(i) Corporate bank credit facility:
The RCI credit facility provides the Company with up to $2.4
billion from a consortium of Canadian financial institutions.
The bank credit facility is available on a fully revolving basis
until maturity on July 2, 2013, and there are no scheduled
reductions prior to maturity. The interest rate charged on
the bank credit facility ranges from nil to 0.5% per annum
over the bank prime rate or base rate or 0.475% to 1.75%
over the bankers’ acceptance rate or the London Inter-Bank
Offered Rate (“LIBOR”). The Company’s bank credit facility
is unsecured and ranks pari passu with the Company’s senior
public debt and Cross-Currency Swaps. The bank credit facility
requires that the Company satisfy certain financial covenants,
including the maintenance of certain financial ratios.
(ii) Cancelled w ireless bank credit facility:
Prior to its repayment and cancellation in June 2007, Wireless’
bank credit facility provided Wireless with up to $700 million
from a consortium of Canadian financial institutions. Interest
rates under the bank credit facility ranged from the bank
prime rate or base rate to the bank prime rate or base rate plus
1.75% per annum, the bankers’ acceptance rate plus 1.0% to
2.75% per annum and LIBOR plus 1.0% to 2.75% per annum.
(iii) Cancelled Cable bank credit facility:
Prior to its repayment and cancellation in June 2007, Cable’s
bank credit facility provided Cable with up to $1 billion of
available credit, comprised of a $600 million Tranche A credit
facility and a $400 million Tranche B credit facility, both of
which were available on a fully revolving basis until maturity
on July 2, 2010, and there were no scheduled reductions prior
to maturity. The interest rate charged on the Cable bank credit
facility ranged from nil to 2.0% per annum over the bank
prime rate or base rate or 0.625% to 3.25% per annum over the
bankers’ acceptance rate or LIBOR.
(iv) Cancelled Media bank credit facility:
Prior to its repayment and cancellation in June 2007, Media’s
bank credit facility provided Media with up to $600 million
from a consortium of Canadian financial institutions.
Borrowings under this facility were available to Media for
general corporate purposes on a fully revolving basis until the
facility was cancelled. The interest rates charged on this credit
facility ranged from the bank prime rate or u.S. base rate plus
nil to 2.0% per annum and the bankers’ acceptance rate or
LIBOR plus 1.0% to 3.0% per annum.
(D) SENIOR NOTES AND DEBENTURES AND SENIOR
SUBORDINATED N OTES:
Interest is paid semi-annually on all of the Company’s notes and
debentures.
Each of the Company’s Senior Notes and Debentures and Senior
Subordinated Notes is redeemable, in whole or in part, at the
Company’s option, at any time, subject to a certain prepayment
premium.
The Company’s u.S. $400 million Senior Subordinated Notes are
redeemable in whole or in part, at the Company’s option, at any
time up to December 15, 2008, subject to a certain prepayment
premium and at any time on or after December 15, 2008, at 104.0%
of the principal amount, declining ratably to 100.0% of the principal
amount on or after December 15, 2010. At December 31, 2008, the
fair value of this prepayment option is $4 million (2007 – $13 million).
(E) FAIR vALUE INCREMENT ARISING FROM PURCHASE
ACCOUNTING:
The fair value increment on long-term debt is a purchase accounting
adjustment required by GAAP as a result of the acquisition of
the minority interest of Wireless during 2004. under GAAP, the
purchase method of accounting requires that the assets and
liabilities of an acquired enterprise be revalued to fair value when
allocating the purchase price of the acquisition. The fair value
increment is amortized over the remaining term of the related debt
and recorded as part of interest expense. The fair value increment,
applied to the specific debt instruments to which it relates, results
in the following carrying values at December 31, 2008 and 2007 of
the debt in the Company’s consolidated accounts:
Senior Notes, due 2011
Senior Notes, due 2011
Senior Notes, due 2012
Senior Notes, due 2014
Senior Notes, due 2015
Senior Subordinated Notes, due 2012
Total
106 ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
9.625% $
7.625%
7.25%
6.375%
7.50%
8.00%
2008
2007
621 $
461
577
905
675
489
507
461
466
728
545
397
$
3,728 $
3,104
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(F ) DEBT REPAYMENTS :
On February 6, 2007, the Company repaid at maturity, the aggregate
principal amount outstanding of Cable’s $450 million 7.60% Senior
Notes.
FOREIGN E xCHANGE:
(I)
Foreign exchange losses related to the translation of long-term
debt recorded in the consolidated statements of income totalled
$65 million (2007 – gain of $46 million).
On May 3, 2007, the Company redeemed the aggregate principal
amount outstanding of Wireless’ u.S. $550 million ($609 million)
Floating Rate Senior Notes due 2010 at a redemption premium of
2%, or $12 million.
On June 21, 2007, the Company redeemed the aggregate principal
amount outstanding of Wireless’ u.S. $155 million ($166 million)
9.75% Senior Debentures due 2016 at a redemption premium of
28.416%. The Company incurred a net loss on repayment of the
Senior Debentures aggregating $47 million, including aggregate
redemption premiums of $59 million offset by a write-down of a
previously recorded fair value increment of $12 million.
In conjunction with the May 3, 2007, redemption of Wireless’ u.S.
$550 million Floating Rate Senior Notes due 2010 and the June
21, 2007, redemption of Wireless’ u.S. $155 million 9.75% Senior
Debentures due 2016, the Company incurred a net cash outlay of
$35 million on settlement of Cross-Currency Swaps and forward
contracts (note 15(d)).
(G) wEIGHTED A vER AGE INTEREST R ATE :
The Company’s effective weighted average interest rate on all
long-term debt, as at December 31, 2008, including the effect of all
of the derivative instruments, was 7.29% (2007 – 7.53%).
(H) PRINCIPAL REPAYMENTS:
As at December 31, 2008, principal repayments due within each
of the next five years and thereafter on all long-term debt are as
follows:
(j) TERMS AND CONDITIONS :
The provisions of the Company’s $2.4 billion bank credit facility
described above impose certain restrictions on the operations and
activities of the Company, the most significant of which are debt
maintenance tests.
In addition, certain of the Company’s Senior Notes and Debentures
described above (including the Company’s 9.625% Senior Notes due
2011, 7.875% Senior Notes due 2012, 6.25% Senior Notes due 2013
and 8.75% Senior Debentures due 2032) contain debt incurrence
tests as well as restrictions upon additional investments, sales of
assets and payment of dividends, all of which are suspended in
the event the public debt securities are assigned investment grade
ratings by at least two of three specified credit rating agencies.
As at December 31, 2008, all of these public debt securities were
assigned an investment grade rating by each of the three specified
credit rating agencies and, accordingly, these restrictions have
been suspended for so long as such investment grade ratings are
maintained. The Company’s other Senior Notes and its Senior
Subordinated Notes do not contain any such restrictions, regardless
of the credit ratings for such securities.
In addition to the foregoing, the repayment dates of certain debt
agreements may be accelerated if there is a change in control of
the Company.
At December 31, 2008 and 2007, the Company was in compliance with
all of the terms and conditions of its long-term debt agreements.
2009
2010
2011
2012
2013
Thereafter
$
1
–
1,235
1,494
1,014
4,751
$ 8,495
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT 107
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. FINANCIAL RISk MANAGEMENT AND FINANCIAL INSTRUMENTS
(A) OvERvIEw:
The Company is exposed to credit risk, liquidity risk and market risk.
The Company’s primary risk management objective is to protect
its income and cash flows and, ultimately, shareholder value.
Risk management strategies, as discussed below, are designed
and implemented to ensure the Company’s risks and the related
exposures are consistent with its business objectives and risk
tolerance.
to mitigate credit risk and has also established procedures to
suspend the availability of services when customers have fully
utilized approved credit limits or have violated established payment
terms. While the Company’s credit controls and processes have been
effective in mitigating credit risk, these controls cannot eliminate
credit risk and there can be no assurance that these controls will
continue to be effective or that the Company’s current credit loss
experience will continue.
(B) CREDIT RIS k:
Credit risk represents the financial loss that the Company would
experience if a counterparty to a financial instrument, in which the
Company has an amount owing from the counterparty, failed to
meet its obligations in accordance with the terms and conditions of
its contracts with the Company.
The Company’s credit risk is primarily attributable to its accounts
receivable. The amounts disclosed in the consolidated balance
sheets are net of allowances for doubtful accounts, estimated by
the Company’s management based on prior experience and their
assessment of the current economic environment. The Company
establishes an allowance for doubtful accounts that represents its
estimate of incurred losses in respect of accounts receivable. The
main components of this allowance are a specific loss component
that relates to individually significant exposures and an overall loss
component established based on historical trends. At December
31, 2008, the Company had accounts receivable of $1,403 million
(2007 – $1,245 million), net of an allowance for doubtful accounts
of $163 million (2007 – $151 million), which adequately reflects the
Company’s credit risk. At December 31, 2008, $614 million (2007 –
$598 million) of accounts receivable is considered past due, which is
defined as amounts outstanding beyond normal credit terms and
conditions for the respective customers. The Company believes that
its allowance for doubtful accounts is sufficient to reflect the related
credit risk.
The Company believes that the concentration of credit risk of
accounts receivable is limited due to its broad customer base,
dispersed across varying industries and geographic locations
throughout Canada.
The Company has established various internal controls, such as
credit checks, deposits on account and billing in advance, designed
There is no significant credit risk related to the Company’s
investments. Credit risk is managed through conducting financial
and other assessments of these investments on an ongoing basis.
Credit risk of Cross-Currency Swaps arises from the possibility
that the counterparties to the agreements may default on their
respective obligations under the agreements in instances where
these agreements have positive fair value for the Company. The
Company assesses the creditworthiness of the counterparties
in order to minimize the risk of counterparty default under the
agreements. All of the portfolio is held by financial institutions
with a Standard & Poor’s rating (or the equivalent) ranging from A+
to AA-. The Company does not require collateral or other security
to support the credit risk associated with Cross-Currency Swaps
due to the Company’s assessment of the creditworthiness of the
counterparties. The obligations under u.S. $5,550 million aggregate
notional amount of the Cross-Currency Swaps are unsecured and
generally rank equally with the Company’s senior indebtedness.
The credit risk of the counterparties is taken into consideration in
determining fair value for accounting purposes (note 15(d)).
(C ) LIqUIDIT Y RIS k:
Liquidity risk is the risk that the Company will not be able to meet
its financial obligations as they fall due. The Company manages
liquidity risk through the management of its capital structure and
financial leverage, as outlined in note 21 to the consolidated financial
statements. It also manages liquidity risk by continuously monitoring
actual and projected cash flows to ensure that it will have sufficient
liquidity to meet its liabilities when due, under both normal and
stressed conditions, without incurring unacceptable losses or
risking damage to the Company’s reputation. At December 31, 2008,
the undrawn portion of the Company’s bank credit facility was
approximately $1.8 billion. utilizations include advances borrowed
under the bank credit facility and issuances of letters of credit.
108 ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following are the contractual maturities, excluding interest
payments, reflecting undiscounted disbursements of the Company’s
financial liabilities at December 31, 2008:
Bank advances, including outstanding cheques
Accounts payable and accrued liabilities
Bank credit facility
Other long-term debt
Other long-term liabilities
Derivative instruments:
Cash outflow (Canadian dollar)
Cash inflow
(Canadian dollar equivalent of u.S. dollar)
Net cash flows of derivative instruments
Carrying
amount
Contractual
cash flows
Less than
1 year
1 to 3
years
4 to 5
years
More than
5 years
$
19 $
19 $
19 $
2,412
585
7,910
184
2,412
585
7,910
184
6,687
(6,796)
154
(109)
2,412
–
1
4
–
–
–
– $
–
–
1,235
81
– $
–
585
1,923
43
–
–
–
4,751
56
780
1,570
4,337
(612)
(1,433)*
(4,751)*
168
137
(414)
$ 11,264 $ 11,001 $
2,436 $
1,484 $
2,688 $
4,393
*Represents Canadian dollar equivalent amount of U.S. dollar inflows matched to an equal amount of U.S. dollar maturities in “other long-term debt”.
In addition to the amounts noted above, at December 31, 2008,
net interest payments over the life of the long-term debt and bank
credit facility, including derivative instruments, are:
Interest payments
Less than
1 year
1 to 3
years
4 to 5
years
More than
5 years
$
618 $
1,188 $
797 $
1,742
(D) MARkET RIS k:
Market risk is the risk that changes in market prices, such as
fluctuations in the market prices of the Company’s publicly traded
investments, the Company’s share price, foreign exchange rates
and interest rates, will affect the Company’s income or the value of
its financial instruments.
(i) Publicly traded investments:
liability is marked-to-market each period, and stock-based
compensation expense is impacted by the change in the price
of the Company’s Class B Non-Voting shares during the life of
the option. At December 31, 2008, a $1 change in the market
price of the Company’s Class B Non-Voting shares would have
resulted in a change of $7 million in net income, net of income
taxes of $3 million.
The Company manages its risk related to fluctuations in the
market prices of its publicly traded investments by regularly
conducting financial reviews of publicly available information
related to its publicly traded investments to ensure that
any risks are within established levels of risk tolerance. The
Company does not routinely engage in risk management
practices such as hedging, derivatives or short selling with
respect to its publicly traded investments.
(iii) Foreign exchange and interest rates:
The Company uses derivative financial instruments to manage
risks from fluctuations in exchange rates and interest rates.
These instruments include Cross-Currency Swaps, and, from
time to time, interest rate exchange agreements, foreign
exchange forward contracts and foreign exchange option
agreements. All such agreements are only used for risk
management purposes.
At December 31, 2008, a $1 change in the market price per
share of the Company’s publicly traded investments would
have resulted in an $8 million change in the Company’s other
comprehensive income, net of income taxes of $2 million.
(ii) Company’s share price:
In addition, market risk arises from accounting for the
Company’s stock-based compensation. All of the Company’s
outstanding stock options are classified as liabilities and
are carried at their intrinsic value, as adjusted for vesting,
measured as the difference between the current share price
and the option exercise price. The intrinsic value of the
Effective August 6, 2008, in conjunction with the issuance of the
u.S. $1.4 billion Senior Notes due 2018, and the u.S. $350 million
Senior Notes due 2038, the Company entered into an aggregate
u.S. $1.75 billion notional principal amount of Cross-Currency Swaps.
An aggregate u.S. $1.4 billion notional principal amount of these
Cross-Currency Swaps hedge the principal and interest obligations
for the u.S. $1.4 billion Senior Notes due 2018 through to maturity
in 2018, while the remaining u.S. $350 million aggregate notional
principal amount of these Cross-Currency Swaps hedge the principal
and interest obligations on the $350 million Senior Notes due 2038
for 10 years to August 15, 2018. These Cross-Currency Swaps have
the effect of: (a) converting the u.S. $1.4 billion aggregate principal
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT 109
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
amount of Senior Notes due 2018 from a fixed coupon rate of 6.80%
into Cdn. $1,435 million at a weighted average fixed interest rate of
6.80%; and (b) converting the u.S. $350 million aggregate principal
amount of Senior Notes due 2038 from a fixed coupon rate of 7.50%
into Cdn. $359 million at a weighted average fixed interest rate of
7.53%. The Cross-Currency Swaps hedging the Senior Notes due 2018
have been designated as effective hedges against the designated
u.S. dollar-denominated debt for accounting purposes, while the
Cross-Currency Swaps hedging the Senior Notes due 2038 have not
been designated as hedges for accounting purposes.
Also effective on August 6, 2008, the Company re-couponed three
of its existing Cross-Currency Swaps by terminating the original
Cross-Currency Swaps aggregating u.S. $575 million notional
principal amount and simultaneously entering into three new Cross-
Currency Swaps aggregating u.S. $575 million notional principal
amount at then current market rates. In each case, only the fixed
foreign exchange rate and the Canadian dollar fixed interest rate
were changed and all other terms for the new Cross-Currency
Swaps are identical to the respective terminated Cross-Currency
Swaps they are replacing. The termination of the three original
Cross-Currency Swaps resulted in the Company paying u.S. $360
million (Cdn. $375 million) for the aggregate out-of-the-money
fair value for the terminated Cross-Currency Swaps on the date of
termination, thereby reducing by an equal amount, the fair value
of the derivative instruments liability on that date. The three new
Cross-Currency Swaps have the effect of converting u.S. $575 million
aggregate notional principal amount of u.S. dollar denominated
debt from a weighted average u.S. dollar fixed interest rate of
7.20% into notional Cdn. $589 million ($1.025 exchange rate) at a
weighted average Canadian dollar fixed interest rate of 6.88%. In
comparison, the original Cross-Currency Swaps had the effect of
converting u.S. $575 million aggregate notional principal amount
of u.S. dollar-denominated debt from a weighted average u.S.
dollar fixed interest rate of 7.20% into notional Cdn. $815 million
($1.4177 exchange rate) at a weighted average Canadian dollar
fixed interest rate of 7.89%. Each of the three new Cross-Currency
Swaps has been designated as a hedge against the designated u.S.
dollar-denominated debt for accounting purposes.
Mark-to-market value – risk-free analysis
Mark-to-market value – credit-adjusted estimate (carrying value)
Difference
110 ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
Prior to the termination of the Cross-Currency Swaps noted
above, changes in the fair value of these Cross-Currency Swaps
had been recorded in accumulated other comprehensive
income and were periodically reclassified to income to offset
foreign exchange gains or losses on related debt or to modify
interest expense to its hedged amount. The remaining balance
in accumulated other comprehensive income relating to these
terminated Cross-Currency Swaps on the termination date was
$144 million. The portion related to future periodic exchanges
of interest of $68 million, net of income taxes of $26 million, will
be recorded in income over the remaining life of the specific
debt securities to which the settled hedging items related
using the effective interest rate method. The portion of the
remaining balance that relates to the future principal exchange
of $43 million, net of income taxes of $7 million, will remain in
accumulated other comprehensive income until such time as the
related debt is settled. The total amortization of re-couponed
Cross-Currency Swaps is $3 million for 2008 and is recorded in
interest expense.
In addition, two Cross-Currency Swaps matured on December 15,
2008. These Cross-Currency Swaps hedged the foreign exchange
risk related to the u.S. $400 million 8.00% Senior Subordinated
Notes due 2012. As a result of the maturity of these Cross-Currency
Swaps, the Company’s u.S. $400 million 8.00% Senior Subordinated
Notes due 2012 are no longer hedged. Proceeds of $494 million
(u.S. $400 million) were received on the settlement of the Cross-
Currency Swaps and a payment of $475 million was made. In
addition, upon settlement of forward foreign exchange contracts on
December 15, 2008, proceeds of $476 million were received and
payments on the forward contracts of $494 million (u.S. $400 million)
were made.
The effect of estimating the credit-adjusted fair value of Cross-
Currency Swaps at December 31, 2008 is illustrated in the table
below. As at December 31, 2008, the net liability of the Company’s
swap portfolio increased by $10 million to $154 million versus the
net liability calculated using risk-free rates. The increase in the
net liability is a result of the estimated fair value of the Cross-
Currency Swaps in an asset position decreasing by $65 million
while the estimated fair value of the Cross-Currency Swaps in a
liability position decreased by $55 million. In 2007, the estimated
fair value, being carrying amount, was determined on a risk-
free basis.
Cross-
Currency
Swaps in an
asset
position
(A)
Cross-
Currency
Swaps in a
liability
position
(B)
Net
liability
position
(A) + (B)
$
572 $
507
(716) $
(661)
(144)
(154)
$
(65) $
55 $
(10)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Of the $10 million change, $7 million was recorded in the
consolidated statements of income related to Cross-Currency
Swaps not accounted for as hedges and $3 million related to Cross-
Currency Swaps accounted for as hedges was recorded in other
comprehensive income.
At December 31, 2008, 87.4% of the Company’s u.S. dollar-
denominated long-term debt instruments were hedged against
fluctuations in foreign exchange rates for accounting purposes.
At December 31, 2008, details of the derivative instruments net
liability are as follows:
2008
Cross-Currency Swaps accounted for as cash flow hedges:
As assets
As liabilities
Subtotal, net mark-to-market asset (liability)
Cross-Currency Swaps not accounted for as hedges:
As assets
As liabilities
Subtotal, net mark-to-market asset
U.S. $
notional
Exchange
rate
Cdn. $
notional
Unadjusted
mark-to-
market
value
on a
risk-free
basis*
Estimated
fair value,
being
carrying
amount on
a credit risk
adjusted
basis*
$
1,975
3,215
1.0252 $
1.3337
2,025 $
4,288
492 $
(712)
435
(658)
5,190
1.2163
6,313
(220)
(223)
350
10
360
1.0258
1.5370
1.0400
359
15
374
79
(3)
76
72
(3)
69
Total notional amounts, net mark-to-market asset (liability)
$
5,550
1.2049 $
6,687 $
(144) $
(154)
Less current portion
*In 2007, the estimated fair value, being carrying amount, was determined on a risk-free basis.
(45)
$
(109)
In 2008, $3 million (2007 - $1 million) related to hedge ineffectiveness
was recognized as a decrease in net income.
At December 31, 2007, details of the derivative instruments liability
are as follows:
The long-term portion above is comprised of a derivative
instruments liability of $616 million and a derivative instruments
asset of $507 million.
2007
Cross-Currency Swaps accounted for as cash flow hedges
Cross-Currency Swaps not accounted for as hedges
Less current portion
u.S. $
notional
Exchange
rate
Cdn. $
notional
Estimated
fair value,
being
carrying
amount on
a risk-free
basis
$
4,190
10
1.3313 $
1.5370
5,578 $
15
$
4,200
$
5,593
1,798
6
1,804
195
$
1,609
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT 111
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The current portion above represents net payments expected to be
made within one year on Cross-Currency Swaps, including upon
settlement for those Cross-Currency Swaps maturing within one year.
this would have resulted in a $6 million change in net income, net
of income taxes of $2 million.
At December 31, 2008, all of the Company’s long-term debt was at
fixed interest rates, with the exception of advances under the bank
credit facility. Net income would have changed by $6 million in the
year ended December 31, 2008, net of income taxes of $2 million,
if there was a 1% change in the interest rates charged on advances
under the bank credit facility.
u.S. $750 million of the Company’s u.S. dollar-denominated long-
term debt instruments are not hedged for accounting purposes
and, therefore, a one cent change in the Canadian dollar relative
to the u.S. dollar would have resulted in a $8 million change in the
carrying value of long-term debt at December 31, 2008. In addition,
A portion of the Company’s accounts receivable and accounts
payable and accrued liabilities is denominated in u.S. dollars;
however, due to their short-term nature, there is no significant
market risk arising from fluctuations in foreign exchange rates.
All of the Company’s Cross-Currency Swaps are unsecured
obligations of RCI. In addition, RCCI and RWP have provided
unsecured guarantees for all of the Company’s Cross-Currency
Swaps (note 15(b)).
(E) FINANCIAL INSTRUMENTS :
(i)
Classification and fair values of financial instruments:
The Company has classified its financial instruments as follows:
Financial assets, available for sale, measured at fair value:
Investments
Loans and receivables, measured at amortized cost:
Accounts receivable
Financial liabilities, measured at amortized cost:
Bank advances, arising from outstanding cheques
Accounts payable and accrued liabilities
Long-term debt
Other long-term liabilities
Financial liabilities (assets), held-for-trading:
Cross-Currency Swaps not accounted for as hedges
Cross-Currency Swaps accounted for as cash flow hedges
Carrying
amount
2008
Fair
value
Carrying
amount
2007
Fair
value
$
319 $
319 $
465 $
465
1,403
1,403
1,245
1,245
$
1,722 $
1,722 $
1,710 $
1,710
Carrying
amount
2008
Fair
value
Carrying
amount
$
19 $
19 $
61 $
2,412
8,507
184
2,412
8,700
184
2,260
6,033
214
(69)
223
(69)
223
6
1,798
2007
Fair
value
61
2,260
6,357
214
6
1,798
$
11,276 $ 11,469 $ 10,372 $ 10,696
The Company did not have any non-derivative held-for-trading
or held-to-maturity financial assets during the years ended
December 31, 2008 and 2007.
against the counterparties, contingent liabilities of a
disposed business or reassessments of previous tax filings
of the corporation that carries on the business.
(ii) Guarantees:
In the normal course of business, the Company has entered
into agreements that contain features that meet the definition
of a guarantee under GAAP. A description of the major types
of such agreements is provided below:
(a) Business sale and business combination agreements:
As part of transactions involving business dispositions, sales
of assets or other business combinations, the Company
may be required to pay counterparties for costs and losses
incurred as a result of breaches of representations and
warranties, intellectual property right infringement, loss
or damages to property, environmental liabilities, changes
in laws and regulations (including tax legislation), litigation
(b) Sales of services:
As part of transactions involving sales of services, the
Company may be required to pay counterparties for costs
and losses incurred as a result of breaches of representations
and warranties, changes in laws and regulations (including
tax legislation) or litigation against the counterparties.
(c) Purchases and development of assets:
A s par t of transac tions involving purchases and
development of assets, the Company may be required
to pay counterparties for costs and losses incurred as a
result of breaches of representations and warranties, loss
or damages to property, changes in laws and regulations
(including tax legislation) or litigation against the
counterparties.
112 ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(d) Indemnifications:
The Company indemnifies its directors, officers and
employees against claims reasonably incurred and resulting
from the performance of their services to the Company, and
maintains liability insurance for its directors and officers as
well as those of its subsidiaries.
The Company is unable to make a reasonable estimate of
the maximum potential amount it would be required to pay
counterparties. The amount also depends on the outcome of future
events and conditions, which cannot be predicted. No amount has
been accrued in the consolidated balance sheets relating to these
types of indemnifications or guarantees at December 31, 2008
or 2007. Historically, the Company has not made any significant
payments under these indemnifications or guarantees.
(iii) Fair values:
The Company has determined the fair values of its financial
instruments as follows:
(a) The carrying amounts in the consolidated balance sheets
of accounts receivable, bank advances arising from
outstanding cheques and accounts payable and accrued
liabilities approximate fair values because of the short-
term nature of these financial instruments.
(b) The fair values of investments that are publicly traded are
determined by the quoted market values for each of the
investments.
(c) The fair values of each of the Company’s public debt
instruments are based on the year-end trading values.
The fair value of the bank credit facility approximates
its carrying amount since the interest rates approximate
current market rates.
(d) The fair values of the Company’s Cross-Currency Swaps and
other derivative instruments are based on estimated credit-
adjusted mark-to-market valuation models (note 2(h)(iii)).
(e) The fair values of the Company’s other long-term financial
assets and financial liabilities are not significantly different
from their carrying amounts.
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instruments. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and, therefore,
cannot be determined with precision. Changes in assumptions
could significantly affect the estimates.
16. OTHER LONG-TERM LIABILITIES
CRTC commitments (note 13)
Deferred compensation
Program rights liability
Supplemental executive retirement plan (note 17)
Deferred gain on contribution of spectrum licences, net of accumulated
amortization of $6 million (2007 - $2 million) (note 5)
Restricted share units
Liabilities related to stock options
Other
$
2008
2007
63 $
33
29
26
18
9
2
4
66
36
26
15
22
16
22
11
$
184 $
214
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT 113
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. PENSIONS
The Company maintains both contributory and non-contributory
defined benefit pension plans that cover most of its employees.
The plans provide pensions based on years of service, years of
contributions and earnings. The Company does not provide any
non-pension post-retirement benefits.
valuations were completed as at January 1, 2008, for all of the
plans except one which was completed January 1, 2007. The next
actuarial valuation for funding purposes must be of a date no later
than January 1, 2009 for certain of the plans and January 1, 2010 for
one of the plans.
Actuarial estimates are based on projections of employees’
compensation levels at the time of retirement. Maximum
retirement benefits are primarily based upon career average
earnings, subject to certain adjustments. The most recent actuarial
The estimated present value of accrued plan benefits and the
estimated market value of the net assets available to provide
for these benefits measured at September 30 for the year ended
December 31 are as follows:
Plan assets, at fair value
Accrued benefit obligations
Deficiency of plan assets over accrued benefit obligations
Employer contributions after measurement date
unrecognized transitional asset
unamortized past service costs
unamortized net actuarial loss
Deferred pension asset
$
2008
556 $
622
(66)
12
(9)
10
115
2007
606
689
(83)
7
(18)
11
122
$
62 $
39
Pension fund assets consist primarily of fixed income and equity
securities, valued at fair value. The following information is
provided on pension fund assets measured at September 30 for the
year ended December 31:
Plan assets, beginning of year
Actual return (loss) on plan assets
Contributions by employees
Contributions by employer
Benefits paid
Plan assets, end of year
Accrued benefit obligations are outlined below measured at
September 30 for the year ended December 31:
Accrued benefit obligations, beginning of year
Service cost
Interest cost
Benefits paid
Contributions by employees
Actuarial loss (gain)
Plan amendments
Accrued benefit obligations, end of year
114 ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
$
2008
2007
606 $
(83)
21
38
(26)
545
39
18
28
(24)
$
556 $
606
2008
2007
$
689 $
28
40
(26)
21
(130)
–
612
29
34
(24)
18
10
10
$
622 $
689
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Net pension expense is outlined below:
Plan cost:
Service cost
Interest cost
Actual loss (return) on plan assets
Actuarial loss (gain) on benefit obligations
Plan amendments
Costs
Differences between costs arising during the year and costs recognized during the year in respect of:
Return (loss) on plan assets
Actuarial loss (gain)
Plan amendments/prior service cost
Amortization of transitional asset
Net pension expense
2008
2007
$
28 $
40
83
(130)
–
21
(127)
135
2
(10)
$
21 $
29
34
(39)
10
10
44
2
(4)
(8)
(10)
24
The Company also provides supplemental unfunded pension
benefits to certain executives. The accrued benefit obligation
relating to these supplemental plans amounted to approximately
$27 million at December 31, 2008 (2007 – $24 million), and the
related expense for 2008 was $11 million (2007 – $2 million). The
accrued pension liability at December 31, 2008 is $26 million (2007 –
$15 million) (note 16).
(A) AC TUARIAL ASSUMP TIONS :
Weighted average discount rate used to determine accrued benefit obligations
Weighted average discount rate used to determine pension expense
Weighted average rate of compensation increase used to determine accrued benefit obligations
Weighted average rate of compensation increase used to determine pension expense
Weighted average expected long-term rate of return on plan assets
2008
2007
6.75%
5.65%
3.00%
3.25%
7.00%
5.65%
5.25%
3.25%
3.50%
6.75%
Expected return on assets represents management’s best estimate
of the long-term rate of return on plan assets applied to the fair
value of the plan assets. The Company establishes its estimate of
the expected rate of return on plan assets based on the fund’s
target asset allocation and estimated rate of return for each asset
class. Estimated rates of return are based on expected returns
from fixed income securities which take into account bond yields.
An equity risk premium is then applied to estimate equity returns.
Differences between expected and actual return are included in
actuarial gains and losses.
The estimated average remaining service periods for the plans
range from 9 to 13 years. In 2008, a curtailment loss of $8 million
associated with the supplemental executive retirement plan was
recognized upon the death of one of the Company’s executives.
The Company did not have any curtailment gains or losses in 2007.
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT 115
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(B) ALLOC ATION OF PL AN ASSETS :
Asset category
Equity securities
Debt securities
Other (cash)
Percentage of plan assets
at measurement date
2008
2007
Target asset
allocation
percentage
52.2%
47.6%
0.2%
59.7% 50% to 65%
40.0% 35% to 50%
0% to 1%
0.3%
100.0%
100.0%
Plan assets are comprised primarily of pooled funds that invest
in common stocks and bonds. The pooled Canadian equity fund
has investments in the Company’s equity securities comprising
approximately 1% of the pooled fund. This results in approximately
$1 million (2007 – $1 million) of the plans’ assets being indirectly
invested in the Company’s equity securities.
The Company makes contributions to the plans to secure the
benefits of plan members and invests in permitted investments
using the target ranges established by the Pension Committee
of the Company. The Pension Committee reviews actuarial
assumptions on an annual basis.
(C ) AC TUAL CONTRIBUTIONS TO THE PL ANS FOR THE YEARS
ENDED D ECEMBER 31, 20 08 AND 20 07 ARE AS FOLLO wS:
2008
2007
Employer
Employee
Total
$
38 $
28
21 $
18
59
46
Expected contributions by the Company in 2009 are estimated to
be $64 million.
Employee contributions for 2009 are assumed to be at levels similar
to 2008 on the assumption staffing levels in the Company will
remain the same on a year-over-year basis.
(D) ExPEC TED C ASH FLO wS:
Expected benefit payments for funded and unfunded plans for
fiscal year ending:
2009
2010
2011
2012
2013
Next five years
$
$
31
32
34
35
36
168
200
368
Certain subsidiaries have defined contribution plans with total pension expense of $2 million in 2008 (2007 – $2 million).
116 ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. SHAREHOLDERS’ EqUITY
(A) C APITAL STOC k:
(i) Preferred shares:
Rights and conditions:
There are 400 million authorized Preferred shares without
par value, issuable in series, with rights and terms of each
series to be fixed by the Board of Directors prior to the issue
of such series. The Preferred shares have no rights to vote at
any general meeting of the Company. No Preferred shares
have been issued.
(ii) Common shares:
Rights and conditions:
There are 112,474,388 authorized Class A Voting shares
without par value. Each Class A Voting share is entitled to
50 votes. The Class A Voting shares are convertible on a one-
for-one basis into Class B Non-Voting shares.
There are 1.4 billion authorized Class B Non-Voting shares
without par value.
The Articles of Continuance of the Company under the
Company Act (British Columbia) impose restrictions on the
transfer, voting and issue of the Class A Voting and Class
B Non-Voting shares in order to ensure that the Company
remains qualified to hold or obtain licences required to carry
on certain of its business undertakings in Canada.
The Company is authorized to refuse to register transfers
of any shares of the Company to any person who is not a
Canadian in order to ensure that the Company remains
qualified to hold the licences referred to above.
(B) DIvIDENDS:
During 2007 and 2008, the Company declared and paid the
following dividends on each of its outstanding Class A Voting and
Class B Non-Voting shares:
Date declared
February 15, 2007
May 28, 2007
July 31, 2007
November 1, 2007
February 21, 2008
April 29, 2008
August 19, 2008
October 28, 2008
Date paid
Dividend
per share
April 2, 2007 $
July 3, 2007
October 1, 2007
January 2, 2008
0.040
0.125
0.125
0.125
$
0.415
April 1, 2008 $
july 2, 2008
October 1, 2008
january 2, 2009
0.250
0.250
0.250
0.250
$
1.000
On January 7, 2008, the Board approved an increase in the annual
dividend from $0.50 to $1.00 per Class A Voting and Class B Non-
Voting share to be paid quarterly on each outstanding Class A
Voting and Class B Non-Voting share. Consequently, the Class A
Voting shares may receive a dividend at a quarterly rate of up to
$0.25 per share only after the Class B Non-Voting shares have been
paid a dividend at a quarterly rate of $0.25 per share. The Class
A Voting and Class B Non-Voting shares share equally in dividends
after payment of a dividend of $0.25 per share for each class.
(C ) NORMAL COURSE ISSUER BID :
In January 2008, the Company filed a normal course issuer bid
(“NCIB”) which authorizes the Company to repurchase up to
the lesser of 15,000,000 of the Company’s Class B Non-Voting
shares and that number of Class B Non-Voting shares that can be
purchased under the NCIB for an aggregate purchase price of $300
million for a period of one year. On May 21, 2008, the Company
repurchased for cancellation 1,000,000 of its outstanding Class B
Non-Voting shares pursuant to a private agreement between the
Company and an arm’s-length third party seller for an aggregate
purchase price of $39.9 million. As a result of this purchase, the
Company recorded a reduction to stated capital, contributed
surplus and retained earnings of $0.9 million, $37.8 million and $1.2
million, respectively. On August 1, 2008, the Company repurchased
for cancellation 3,000,000 of its outstanding Class B Non-Voting
shares pursuant to a private agreement between the Company
and an arm’s-length third party seller for an aggregate purchase
price of $93.9 million. As a result of this purchase, the Company
recorded a reduction to stated capital, contributed surplus and
retained earnings of $2.8 million, $88.3 million and $2.8 million,
respectively. Each of these purchases was made under issuer bid
exemption orders issued by the Ontario Securities Commission
and will be included in calculating the number of Class B Non-
Voting shares that the Company may purchase pursuant to the
NCIB. In addition, in August and September of 2008, the Company
repurchased for cancellation an aggregate 77,400 of its outstanding
Class B Non-Voting shares directly under the NCIB for an aggregate
purchase price of $2.9 million, resulting in a reduction to stated
capital, contributed surplus and retained earnings of $0.1 million,
$2.7 million and $0.1 million, respectively.
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT 117
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(D) ACCUMUL ATED OTHER COMPREHENSI vE INCOME ( LOSS):
unrealized gain on available-for-sale investments
unrealized loss on cash flow hedging instruments
Related income taxes
19. STOCk-BASED COMPENSATION
Stock options, share units and share purchase plans:
A summary of stock-based compensation expense (recovery), which is
included in operating, general and administrative expense, is as follows:
Stock-based compensation:
Stock options (A)
Restricted share units (B)
Deferred share units (C)
$
2008
205 $
(377)
77
2007
351
(335)
34
$
(95) $
50
2008
2007
$
(104) $
7
(3)
$
(100) $
34
21
7
62
These amounts are exclusive of the $452 million charge related
to the amendment of the stock option plans on May 28, 2007, as
described below:
At December 31, 2008, the Company had a liability of $278 million
(2007 – $493 million), of which $267 million (2007 – $455 million) is
a current liability related to stock-based compensation recorded
at its intrinsic value, including stock options, restricted share units
and deferred share units. During the year ended December 31,
2008, $106 million (2007 – $80 million) was paid to holders upon
exercise of restricted share units and stock options using the cash
settlement feature.
(A) STOCk OP TIONS :
(i) Amendments to stock option plans:
On May 28, 2007, the Company’s 1994 Stock Option Plan (“1994
Plan”), 1996 Stock Option Plan (“1996 Plan”) and 2000 Stock
Option Plan (“2000 Plan”) were amended to allow for cash
settled SARs to be attached to all new and previously granted
options. The SAR feature allows option holders to elect to
receive an amount in cash equal to the intrinsic value, being
the excess market price of the Class B Non-Voting share over
the exercise price of the option, instead of exercising the
option and acquiring Class B Non-Voting shares.
As a result, effective May 28, 2007, all outstanding stock
options are classified as liabilities and are carried at their
intrinsic value as adjusted for vesting. The intrinsic value is
marked-to-market each period and is amortized to expense
over the period in which the related services are rendered,
which is usually the graded vesting period or, as applicable,
over the period to the date an employee is eligible to retire,
whichever is shorter. Prior to May 28, 2007, all stock options
were classified as equity and were measured at the estimated
fair value established by the Black Scholes or binomial models
on the date of grant. under this method, the estimated fair
value was amortized to expense over the period in which
the related services were rendered, which was usually the
vesting period or, as applicable, over the period to the date
an employee was eligible to retire, whichever was shorter.
The impact of the amendment to the stock option plans at
May 28, 2007, was an increase in liabilities of $502 million, a
decrease in contributed surplus of $50 million and a one-time
non-cash charge of $452 million. In addition, a future income
tax recovery of $160 million was recorded on May 28, 2007, as a
result of the amendment.
(ii) Stock option plans:
Options to purchase Class B Non-Voting shares of the Company on
a one-for-one basis may be granted to employees, directors and
officers of the Company and its affiliates by the Board of Directors
or by the Company’s Management Compensation Committee.
There are 30 million options authorized under the 2000 Plan,
25 million options authorized under the 1996 Plan, and 9.5 million
options authorized under the 1994 Plan. The term of each option
is 7 to 10 years and the vesting period is generally four years but
may be adjusted by the Management Compensation Committee
on the date of grant. The exercise price for options is equal to the
fair market value of the Class B Non-Voting shares determined
as the five-day average before the grant date as quoted on the
Toronto Stock Exchange (the “TSx”).
118 ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2008, a summary of the stock option plans is as follows:
Outstanding, beginning of year
Granted
Exercised
Forfeited
Outstanding, end of year
Exercisable, end of year
At December 31, 2008, the range of exercise prices, the weighted
average exercise price and the weighted average remaining
contractual life are as follows:
Range of
exercise prices
$ 1.38 – $ 6.99
$ 7.00 – $ 9.99
$10.00 – $10.99
$11.00 – $11.99
$12.00 – $16.99
$17.00 – $18.99
$19.00 – $37.99
$38.00 – $47.99
Number
outstanding
774,518
1,380,632
2,358,650
702,096
1,819,679
943,859
2,003,144
3,859,042
2008
weighted
average
exercise
price
Number of
options
2007
Weighted
average
exercise
price
Number of
options
15,586,066 $
2,148,110
(3,804,520)
(88,036)
15.96 19,694,860 $
38.83 1,886,088
10.55
34.69
(5,847,046)
(147,836)
11.17
39.19
7.17
20.16
13,841,620 $
20.80 15,586,066 $
15.96
9,228,740 $
13.82 11,409,666 $
11.41
Options outstanding
Options exercisable
Weighted
average
remaining
contractual
life (years)
Weighted
average
exercise
price
Number
exercisable
Weighted
average
exercise
price
3.4 $
4.4
4.7
2.1
4.1
1.5
7.2
8.7
5.50
8.41
10.43
11.82
13.88
17.87
23.13
39.04
774,518 $
1,380,632
2,358,650
702,096
1,661,154
938,614
975,501
437,575
5.50
8.41
10.43
11.82
13.59
17.87
22.82
39.21
13.82
13,841,620
5.7
20.80
9,228,740
The weighted average estimated fair value at the date of grant
for options granted from January 1, 2007 to May 28, 2007 was
$13.62 per share.
For in-the-money stock options measured at the Company’s
December 31 share price, unrecognized stock-based compensation
expense related to stock-option plans was $3 million (2007 –
$20 million), and will be recorded in the consolidated statements of
income over the next four years.
(iii) Performance options:
During the year ended December 31, 2008, the Company
granted 1,142,300 (2007 – 1,036,200) performance-based
options to certain key executives. These options are governed
by the terms of the 2000 Plan. These options vest on a straight-
line basis over four years provided that certain targeted stock
prices are met on or after the anniversary date.
As a result of the May 28, 2007, SAR amendment, all
outstanding options, including the performance options, are
classified as liabilities and are carried at their intrinsic value as
adjusted for vesting.
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT 119
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(iv) Assumptions:
The fair values of options granted or amended prior to May 28,
2007 were based on the following assumptions:
Risk-free interest rate
Dividend yield
Volatility factor of the future expected market prices of Class B Non-Voting shares
Weighted average expected life of the options
3.92% - 4.00%
0.42% - 0.43%
34.47% - 36.55%
4.7 - 6.0 years
(B) RESTRIC TED SHARE UNITS :
The restricted share unit plan enables employees, officers and
directors of the Company to participate in the growth and
development of the Company. under the terms of the plan, restricted
share units are issued to the participant and the units issued vest over
a period not to exceed three years from the grant date.
On the vesting date, the Company shall redeem all of the participants’
restricted share units in cash or by issuing one Class B Non-Voting
share for each restricted share unit. The Company has reserved
4,000,000 Class B Non-Voting shares for issuance under this plan.
During the year ended December 31, 2008, the Company granted
451,535 restricted share units (2007 – 266,720). At December 31, 2008,
1,126,548 (2007 – 1,167,564) restricted share units were outstanding.
These restricted share units vest at the end of three years from the
grant date. Stock-based compensation expense for the year ended
December 31, 2008, related to these restricted share units was
$7 million (2007 – $21 million).
For in-the-money restricted share units measured at the Company’s
December 31 share price, unrecognized stock-based compensation
expense as at December 31, 2008 related to these restricted share
units was $16 million (2007 – $19 million), and will be recorded in the
consolidated statements of income over the next three years.
(C ) DEFERRED SHARE UNITS :
The deferred share unit plan enables directors and certain key
executives of the Company to elect to receive certain types of
remuneration in deferred share units, which are classified as a
liability on the consolidated balance sheets (2008 – $27 million;
2007 – $24 million). During the year ended December 31, 2008, the
Company granted 186,084 deferred share units (2007 - 281,079).
At December 31, 2008, 730,454 (2007 – 544,370) deferred share
units were outstanding. Stock-based compensation expense
(recovery) for the year ended December 31, 2008 related to these
deferred share units was $(3) million (2007 – $7 million). There is
no unrecognized compensation expense related to deferred share
units, since these awards vest immediately when granted.
(D) EMPLOYEE SHARE ACCUMUL ATION PL AN :
The employee share accumulation plan allows employees to
voluntarily participate in a share purchase plan. under the terms
of the plan, employees of the Company can contribute a specified
percentage of their regular earnings through payroll deductions.
The designated administrator of the plan then purchases, on a
monthly basis, Class B Non-Voting shares of the Company on the
open market on behalf of the employee. At the end of each month,
the Company makes a contribution of 25% to 50% of the employee’s
contribution in the month, which is recorded as compensation
expense. The administrator then uses this amount to purchase
additional shares of the Company on behalf of the employee, as
outlined above.
Compensation expense related to the employee share accumulation
plan amounted to $14 million (2007 – $9 million) for the year ended
December 31, 2008.
120 ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
20. CONSOLIDATED STATEMENTS OF CASH FLO wS AND SUPPLEMENTAL INFORMATION
(A) CHANGE IN NON - C ASH OPER ATING wORkING
C APITAL ITEMS:
Increase in accounts receivable
Increase in other assets
Increase (decrease) in accounts payable and accrued liabilities
Increase (decrease) in unearned revenue
(B) SUPPLEMENTAL C ASH FLO w INFORMATION :
Income taxes paid
Interest paid
21. CAPITAL RISk MANAGEMENT
$
2008
2007
(166) $
(176)
115
12
(122)
(71)
(115)
(2)
$
(215) $
(310)
2008
2007
$
1 $
532
1
605
The Company’s objectives in managing capital are to ensure
sufficient liquidity to pursue its strategy of organic growth
combined with strategic acquisitions and to provide returns to its
shareholders. The Company defines capital that it manages as the
aggregate of its shareholders’ equity, which is comprised of issued
capital, contributed surplus, accumulated other comprehensive
income and retained earnings.
During the year ended December 31, 2008, 4,077,400 shares were
repurchased, 77,400 of which were repurchased directly under
the NCIB and 4,000,000 of which were made under issuer bid
exemption orders issued by the Ontario Securities Commission and
each of which will be included in calculating the number of Class B
Non-Voting shares that the Company may purchase pursuant to the
NCIB (note 18(c)). The NCIB expired on January 13, 2009 (note 26).
The Company manages its capital structure and makes adjustments
to it in light of general economic conditions, the risk characteristics
of the underlying assets and the Company’s working capital
requirements. In order to maintain or adjust its capital structure, the
Company, upon approval from its Board of Directors, may issue or
repay long-term debt, issue shares, repurchase shares, pay dividends
or undertake other activities as deemed appropriate under the
specific circumstances. The Board of Directors reviews and approves
any material transactions out of the ordinary course of business,
including proposals on acquisitions or other major investments or
divestitures, as well as annual capital and operating budgets.
In January 2008, the Company applied to the TSx to make an NCIB,
which was accepted by the TSx on January 10, 2008 for purchases
of its Class B Non-Voting shares through the facilities of the TSx.
In August 2008, the Company issued u.S. $1.75 billion of long-term
debt (note 14(a)) and entered into Cross-Currency Swaps (note 15(d)).
In addition, the Company re-couponed certain Cross-Currency
Swaps (note 15(d)). In December 2008, two of the Company’s Cross-
Currency Swaps aggregating u.S. $400 million notional principal
amount expired (note 15(d)).
The Company monitors debt leverage ratios as part of the
management of liquidity and shareholders’ return and to sustain
future development of the business.
The Company is not subject to externally imposed capital requirements
and its overall strategy with respect to capital risk management
remains unchanged from the year ended December 31, 2007.
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT 121
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
22. RELATED PARTY TRANSACTIONS
The Company entered into the following related party transactions:
(A) The Company has entered into certain transactions in the
normal course of business with certain broadcasters in which
the Company has an equity interest. The amounts paid to these
broadcasters are as follows:
Access fees paid to broadcasters accounted for by the equity method
2008
2007
$
17 $
18
(B) The Company has entered into certain transactions with
companies, the partners or senior officers of which are or were
directors of the Company. Total amounts paid by the Company to
these related parties, directly or indirectly, are as follows:
Legal services, printing and commissions paid on premiums for insurance coverage
2008
2007
$
7 $
2
(C ) The Company entered into certain transactions with the
controlling shareholder of the Company and companies controlled
by the controlling shareholder of the Company. These transactions
are subject to formal agreements approved by the Audit Committee.
Total amounts paid to (received from) these related parties are as
follows:
2008
2007
$
(1) $
(1)
(D) Pursuant to CRTC regulation, the Company is required to make
contributions to the Canadian Television Fund (“CTF”), which is a
cable industry fund designed to foster the production of Canadian
television programming. Contributions to the CTF are based on
a formula, including gross broadcast revenues and the number
of subscribers. The Company may elect to spend a portion of the
above amount for local television programming and may also elect
to contribute a portion to another CRTC-approved independent
production fund. The Company estimates that its total contribution
for 2009 will amount to approximately $53 million.
(E) Pursuant to CRTC regulation, the Company is required to
pay certain telecom contribution fees. These fees are based on a
formula including certain types of revenue, including the majority
of wireless revenue. The Company estimates that these fees for
2009 will amount to approximately $50 million.
Recoveries for use of aircraft and other administrative services
These transactions are recorded at the exchange amount, being
the amount agreed to by the related parties, and are reviewed by
the Audit Committee.
23. COMMITMENTS
(A) The Company is committed, under the terms of its licences
issued by Industry Canada, to spend 2% of certain wireless revenues
earned in each year on research and development activities.
(B) The Company enters into agreements with suppliers to provide
services and products that include minimum spend commitments.
The Company has agreements with certain telephone companies
that guarantee the long-term supply of network facilities and
agreements relating to the operations and maintenance of the
network.
(C)
In the ordinary course of business and in addition to the
amounts recorded on the consolidated balance sheets and disclosed
elsewhere in the notes, the Company has entered into agreements
to acquire broadcasting rights to programs and films over the next
five years at a total cost of approximately $258 million. In addition,
the Company has commitments to pay access fees over the next
year totalling approximately $20 million.
122 ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(F) Pursuant to Industry Canada regulation, the Company is
required to pay certain fees for the use of its licenced radio
spectrum. These fees are primarily based on the bandwidth
and population covered by the spectrum licence. The Company
estimates that these fees for 2009 will amount to $75 million.
(G)
In addition to the items listed above, the future minimum
lease payments under operating leases for the rental of premises,
distribution facilities, equipment and microwave towers,
commitments for player contracts, purchase obligations and other
contracts at December 31, 2008 are as follows:
24. CONTINGENT LIABILITIES
Year ending December 31:
2009
2010
2011
2012
2013
2014 and thereafter
$
721
536
416
252
173
207
$ 2,305
Rent expense for 2008 amounted to $178 million (2007 –
$166 million).
(A) The CRTC collects two different types of fees from broadcast
licencees which are known as Part I and Part II fees. In 2003 and
2004, lawsuits were commenced in the Federal Court alleging
that the Part II licence fees are taxes rather than fees and that the
regulations authorizing them are unlawful. On December 14, 2006,
the Federal Court ruled that the CRTC did not have the jurisdiction
to charge Part II fees. On October 15, 2007, the CRTC sent a letter to
all broadcast licencees stating that the CRTC would not collect Part
II fees due in November 2007. As a result, in the third quarter of
2007, the Company reversed its accrual of $18 million related to Part
II fees from September 1, 2006 to June 30, 2007. Both the Crown and
the applicants appealed this case to the Federal Court of Appeal. On
April 28, 2008, the Federal Court of Appeal overturned the Federal
Court and ruled that Part II fees are valid regulatory charges. As a
result, during the second quarter of 2008, Cable and Media recorded
charges of approximately $30 million and $7 million, respectively,
for CRTC Part II fees covering the period September 1, 2006 to
March 31, 2008. In addition to recording $5 million and $2 million
in the second quarter of 2008, for Cable and Media, respectively,
the Company continues to record these fees on a prospective basis
in operating, general and administrative expenses. Leave to appeal
the April 28, 2008 Federal Court of Appeal decision was granted by
the Supreme Court on December 18, 2008. Although the Supreme
Court will hear the appeal, there is no assurance that the Supreme
Court will overturn the Federal Court of Appeal decision.
In August 2008, a proceeding was commenced in Ontario
(B)
pursuant to that province’s Class Proceedings Act, 1992 against
Cable and other providers of communications services in Canada.
The proceedings involve allegations of, among other things, false,
misleading and deceptive advertising relating to charges for long
distance telephone usage. The plaintiffs are seeking $20 million in
general damages and punitive damages of $5 million. The plaintiffs
intend to seek an order certifying the proceedings as a class action.
Any potential liability is not yet determinable.
In June 2008, a proceeding was commenced in Saskatchewan
(C)
under that province’s Class Actions Act against providers of
wireless communications services in Canada. The proceeding
involves allegations of, among other things, breach of contract,
misrepresentation and false advertising in relation to the 911 fee
charged by the Company and the other wireless communication
providers in Canada. The plaintiffs are seeking unquantified
damages and restitution. The plaintiffs intend to seek an order
certifying the proceeding as a national class action in Saskatchewan.
Any potential liability is not yet determinable.
(D)
In August 2004, a proceeding under the Class Actions
Act (Saskatchewan) was brought against providers of wireless
communications in Canada. Since that time, similar proposed
class actions have also been commenced in Newfoundland and
Labrador, New Brunswick, Nova Scotia, Québec, Ontario, Manitoba,
Alberta and British Columbia. The proceeding involves allegations
by wireless customers of, among other things, breach of contract,
misrepresentation, false advertising and unjust enrichment with
respect to the system access fee charged by Wireless to some of
its customers. The plaintiffs seek unquantified damages from
the defendants. Wireless believes it has a good defence to the
allegations. The plaintiffs applied for an order certifying a national
class action in Saskatchewan. In September 2007, the Saskatchewan
Court granted the plaintiffs’ application to have the proceeding
certified as a class action. The Company is applying for leave to
appeal this decision to the Saskatchewan Court of Appeal. In
February 2008, the Saskatchewan court granted the Company’s
application to amend the certification order so as to exclude
from the class of plaintiffs any customer bound by an arbitration
clause with Wireless or Fido. The Company has not recorded a
liability for this contingency since the likelihood and amount of
any potential loss cannot be reasonably estimated. If the ultimate
resolution of this action differs from the Company’s assessment
and assumptions, a material adjustment to its financial position and
results of operations could result. In January 2009, a hearing took
place before the Saskatchewan Court on the issue of whether this
proceeding should establish a national “opt-out” class rather than
an “opt-in” class. If certified as a national opt-out class, affected
customers outside Saskatchewan would have to take specific steps
in order to not participate in the proceeding and if certified as a
national opt-in class, affected customers outside Saskatchewan
would have to take specific steps to participate. The Company is
awaiting a decision from the Court.
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT 123
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(E)
In April 2004, a proceeding was brought against Fido and other
Canadian wireless carriers claiming damages totalling $160 million,
breach of contract, breach of confidence, breach of fiduciary duty
and, as an alternative to the damages claims, an order for specific
performance of a conditional agreement relating to the use of 38
MHz of MCS Spectrum. The Plaintiff has also brought a proceeding
against Inukshuk Wireless Partnership (“Inukshuk”), the Company’s
50% owned joint venture asserting a claim against the MCS
Spectrum licences that were transferred from Fido to Inukshuk.
Inukshuk brought a motion to have the separate action against
it dismissed. In May 2008, the Court dismissed the separate action
brought against Inukshuk. The appeal of this decision was heard in
January 2009. The Company is awaiting a decision from the Court.
The Company believes it has good defences to the claim and no
amounts have been provided in the accounts.
(F) The Company believes that it has adequately provided for
income taxes based on all of the information that is currently
available. The calculation of income taxes in many cases, however,
requires significant judgment in interpreting tax rules and
regulations. The Company’s tax filings are subject to audits, which
could materially change the amount of current and future income
tax assets and liabilities, and could, in certain circumstances, result
in the assessment of interest and penalties.
(G) There exist certain other claims and potential claims against
the Company, none of which is expected to have a material adverse
effect on the consolidated financial position of the Company.
25. CANADIAN AND U NITED STATES ACCOUNTING POLICY DIFFERENCES
The consolidated financial statements of the Company have been
prepared in accordance with GAAP as applied in Canada. In the
following respects, GAAP, as applied in the united States, differs
from that applied in Canada.
If united States GAAP were employed, net income for the years
ended December 31, 2008 and 2007 would be adjusted as follows:
Net income for the year based on Canadian GAAP
Gain on sale of cable systems (B)
Pre-operating costs capitalized (C)
Capitalized interest, net of related depreciation (D)
Financial instruments (E)
Stock-based compensation (F)
Income taxes (H)
Installation revenues and costs, net (I)
Other
Net income for the year based on united States GAAP
Net income per share based on united States GAAP:
Basic
Diluted
If united States GAAP were employed, comprehensive income for
the years ended December 31, 2008 and December 31, 2007 would
be adjusted as follows:
Comprehensive income for the year based on Canadian GAAP
Impact of united States GAAP differences on net income
Change in fair value of derivative instruments, net of income taxes of $88 (2007 – $100) (E)
Change in funded status of pension plans for unrecognized amounts, net of income taxes of $6 (2007 – $6) (G)
Comprehensive income for the year based on united States GAAP
124 ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
2008
2007
$
1,002 $
(4)
1
11
(76)
(32)
90
10
(2)
637
(4)
4
10
210
3
125
(4)
3
$
1,000 $
984
$
1.57 $
1.57
1.54
1.53
$
2008
857 $
(2)
5
16
2007
901
347
(126)
(15)
$
876 $
1,107
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The cumulative effect of these adjustments on the consolidated
shareholders’ equity of the Company is as follows:
Shareholders’ equity based on Canadian GAAP
Cumulative impact of differences in business combinations and consolidation accounting (A)
Gain on sale of cable systems (B)
Pre-operating costs capitalized (C)
Capitalized interest (D)
Financial instruments (E)
Stock-based compensation (F)
Pension liability (G), (L)
Income taxes (H)
Installation revenues and costs, net (I)
Other
2008
2007
$
4,727 $
(8)
105
(2)
79
43
8
(107)
(20)
12
(21)
4,624
(8)
109
(3)
68
26
33
(123)
(17)
2
(19)
Shareholders’ equity based on united States GAAP
$
4,816 $
4,692
The areas of material difference between Canadian and united
States GAAP and their impact on the consolidated financial
statements of the Company are described below:
(A) CUMUL ATIvE IMPAC T OF DIFFERENCES IN BUSINESS
COMBINATIONS AND CONSOLIDATION ACCOUNTING :
Certain differences between united States and Canadian GAAP
arose in prior years relating to the dilution gain on the sale of
Wireless shares, non-controlling interest accounting during the
time period that RCI did not own 100% of Wireless, the acquisition
of the outstanding shares in Wireless and the acquisition of a cable
company in Atlantic Canada.
(C ) PRE- OPER ATING COSTS C APITALIZED :
under Canadian GAAP, the Company defers the incremental costs
relating to the development and pre-operating phases of new
businesses and amortizes these costs on a straight-line basis over
periods up to five years. under united States GAAP, these costs are
expensed as incurred.
(D) C APITALIZED INTEREST:
under united States GAAP, interest costs are capitalized as
part of the historical cost of acquiring certain qualifying assets,
which require a period of time to prepare for their intended use.
Capitalization is not required under Canadian GAAP.
(B) GAIN ON SALE OF C ABLE SYSTEMS :
under Canadian GAAP, the cash proceeds on the non-monetary
exchange of cable assets in prior years were recorded as a reduction
in the carrying value of PP&E. under united States GAAP, a portion
of the cash proceeds received was recognized as a $40 million gain
in the consolidated statements of income on an after-tax basis. This
difference is being amortized over 10 years.
As a result of this transaction, the carrying amount of the above
assets is higher and additional depreciation expense is recorded
under united States GAAP.
under Canadian GAAP, the after-tax gain arising on the sale of
certain of the Company’s cable television systems in prior years was
recorded as a reduction of the carrying value of goodwill acquired
in a contemporaneous acquisition of certain cable television
systems. under united States GAAP, the Company included the
$101 million gain on sale of the cable television systems in income,
net of related income taxes.
(E) FINANCIAL INSTRUMENTS :
Effective January 1, 2007, the Company adopted the new Canadian
GAAP accounting standards for financial instruments (note 2(h)(ii)).
As a result, under Canadian GAAP, the Company now records the
changes in fair value of cash flow hedging derivatives in other
comprehensive income, to the extent effective, until the variability
of cash flows relating to the hedged asset or liability is recognized
in the consolidated statements of income. under united States
GAAP, certain instruments are not accounted for as hedges but
instead changes in the fair value of the derivative instruments,
reflecting primarily market changes in foreign exchange rates,
interest rates, as well as the level of short-term variable versus
long-term fixed interest rates, are recognized in the consolidated
statements of income immediately. For the year ended December
31, 2008, a loss of $5 million ($93 million less income taxes of $88
million) was reclassified from other comprehensive income under
Canadian GAAP to the consolidated statements of income for
united States GAAP.
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT 125
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As a result of the application of the new Canadian GAAP standards,
the Company separated the early repayment option on one of
the Company’s debt instruments and recorded the fair value of
$19 million related to this embedded derivative at January 1, 2007,
with a corresponding decrease in opening deficit of $13 million, net
of income taxes of $6 million. During 2008, the decrease in fair value
of this early repayment option, amounting to $9 million (2007 –
$6 million), was recorded in the consolidated statements of income
under Canadian GAAP. under united States GAAP, the Company is
not permitted to separate the early repayment option.
Effective January 1, 2007, under Canadian GAAP, the Company
records all transaction costs for financial assets and financial
liabilities in income as incurred. As a result, under Canadian GAAP,
the carrying value of transaction costs of $39 million, net of income
taxes of $20 million, was charged to opening deficit on transition at
January 1, 2007. under united States GAAP, the Company continues
to defer these costs and amortize them over the term of the related
asset or liability. During 2008, the Company capitalized $16 million
in debt issuance costs for united States GAAP purposes.
The impact of these changes on net income on a pre-tax basis are
summarized as follows for the year ended December 31:
Reclassification from other comprehensive income of change in fair value of derivatives
not accounted for as hedges under united States GAAP
Decrease in fair value of prepayment option not accounted for under united States GAAP
Deferral of transaction costs
Amortization of deferred transaction costs under united States GAAP
united States GAAP difference in net income (pre-tax)
The impact of these changes on shareholders’ equity is summarized
as follows:
Transaction costs
Early repayment option
united States GAAP difference in ending shareholders’ equity (pre-tax)
2008
2007
$
(93) $
9
16
(8)
226
6
–
(22)
$
(76) $
210
2008
2007
47 $
(4)
43 $
39
(13)
26
$
$
The Financial Accounting Standards Board (“FASB”) Statement
No. 157 (“FASB No. 157”), Fair Value Measurements, defines fair
value, establishes a framework for measuring fair value under
generally accepted accounting principles and establishes a hierarchy
that categorizes and prioritizes the sources to be used to estimate
fair value. FASB No. 157 also expands disclosures about fair value
measurements in the financial statements. On February 12, 2008,
the FASB issued FASB Staff Position 157-2 (“FSP 157-2”), Effective
Date of FASB Statement No. 157, which delays the effective date
of FASB No. 157 for one year, for all non-financial assets and non-
financial liabilities, except those that are recognized or disclosed at
fair value in the financial statements on a recurring basis (at least
annually). The Company elected a partial deferral of FASB No. 157
under the provisions of FSP 157-2 related to the measurement of fair
value used when initially measuring non-financial assets and non-
financial liabilities in a business combination, evaluating goodwill,
other intangible assets, wireless licences and other long-lived
assets for impairment and valuing asset retirement obligations and
liabilities for exit or disposal activities. The impact of implementing
FSP 157-2, effective January 1, 2009, is not expected to be material
to the Company’s financial statements. The impact of partially
adopting FASB No. 157 effective January 1, 2008 was not material to
the Company’s financial statements.
On October 10, 2008, the FASB issued FSP 157-3, Determining the
Fair Value of a Financial Asset When the Market for That Asset
is Not Active, which clarifies the application of FASB No.157 in a
Market that is not active. FSP 157-3 was effective upon issuance,
including prior periods for which financial statements have not
been issued. The adoption of this FSP did not have any impact on
the Company.
FASB Statement No. 159:
Effective January 1, 2008, FASB Statement No. 159, The Fair Value
Option for Financial Assets and Financial Liabilities - Including an
Amendment of SFAS No. 115 (“FASB No. 159”), was adopted by the
Company. This statement permits but does not require the Company
to measure financial instruments and certain other items at fair
value. As the Company did not elect to fair value any of its financial
instruments under the provisions of FASB No. 159, the adoption of
this statement did not have an impact on the Company’s financial
statements.
126 ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(F ) STOCk-BASED COMPENSATION :
As a result of the amendment to the stock option plans on May 28,
2007, all of the Company’s outstanding stock options can now be
settled in cash at the discretion of the employee or director (note
19(a)(i)). under united States GAAP, the cost of stock-based awards
that are settled in cash, or may be settled in cash at the discretion of
the employee or director, are required to be measured at fair value
on each reporting date. under Canadian GAAP, the liability and
compensation cost for these awards are measured at the intrinsic
value of the awards at each reporting date. In addition, under
united States GAAP, the fair value is amortized to expense on a
straight-line basis over the vesting period or, as applicable, over
the period in which the employee is eligible to retire, whichever
is shorter. under Canadian GAAP, the intrinsic value is amortized
to expense over the graded vesting period or, as applicable, over
the period in which the employee is eligible to retire, whichever
is shorter. As a result, stock-based compensation expense would
be increased by $32 million under united States GAAP for the
year ended December 31, 2008 (2007 – decreased by $3 million),
resulting from remeasuring the fair value of stock-based awards at
the greater of the grant date fair value and the reporting date fair
value.
At December 31, 2008, the recorded liability for these awards is
$8 million lower under united States GAAP than recorded under
Canadian GAAP (2007 – $33 million).
difference of the Company’s investment in Rogers Wireless Inc. was
reversed as a result of the amalgamation of Rogers Wireless Inc.
and RCI. This resulted in an increase to income in 2007 under united
States GAAP of $254 million.
united States GAAP requires the valuation allowance to be allocated
on a pro rata basis between current and non-current future tax
assets for the relevant tax jurisdiction. This GAAP difference would
result in a decrease in current future tax assets under united States
GAAP of $37 million and a decrease in non-current future tax
liabilities of the same amount.
INSTALL ATION RE vENUES AND COSTS , NET:
(I)
For Canadian GAAP purposes, cable installation revenues for both
new connects and re-connects are deferred and amortized over the
customer relationship period. For united States GAAP purposes,
installation revenues are immediately recognized in income to
the extent of direct selling costs, with any excess deferred and
amortized over the customer relationship period.
(j) CONSOLIDATED STATEMENTS OF C ASH FLO wS:
(i)
Canadian GAAP permits the disclosure of a subtotal of the
amount of funds provided by operations before changes in
non-cash operating working capital items in the consolidated
statements of cash flows. united States GAAP does not permit
this subtotal to be included.
(G)
PENSION LIABILIT Y REL ATED TO FUNDED STATUS OF
PENSION PL ANS:
(ii)
under united States GAAP, the Company was required to adopt
the recognition and disclosure provisions of FASB Statement No.
158, Employers’ Accounting for Defined Benefit Pension and Other
Postretirement Plans (“FAS 158”), as at December 31, 2006. under
FAS 158, the Company is required to recognize the funded status
of defined benefit postretirement plans on the balance sheet with
changes recorded in other comprehensive income (loss). For the year
ended December 31, 2008, under united States GAAP, the Company
recorded an increase of $16 million (2007 – decrease of $15 million)
to other comprehensive income, net of income taxes of $6 million
(2007 – $6 million) to reflect the current period increase in the funded
status differences.
To comply with the requirements of FAS 158, the Company adopted
December 31, as its measurement date effective December 31, 2008,
without remeasuring the plan assets and obligations at January 1,
2008. This resulted in a decrease in retained earnings of $4 million
($6 million less income taxes of $2 million), with a corresponding
increase of $6 million to the Company’s pension liability.
INCOME TA xES:
(H)
Included in the caption “Income taxes” is the tax effect of various
adjustments where appropriate. In addition, in 2007, the deferred
tax liability of $254 million related to the historical outside basis
Canadian GAAP permits bank advances to be included in the
determination of cash and cash equivalents in the consolidated
statements of cash flows. united States GAAP requires that
bank advances be reported as financing cash flows. As a result,
under united States GAAP, the total increase in cash and cash
equivalents in 2008 in the amount of $42 million reflected
in the consolidated statements of cash flows would be nil
and cash provided by financing activities would increase by
$42 million. The total decrease in cash and cash equivalents in
2007 in the amount of $42 million reflected in the consolidated
statements of cash flows would be nil and cash used in
financing activities would be increased by $42 million.
(k ) OTHER DISCLOSURES :
united States GAAP requires the Company to disclose accrued
liabilities, which is not required under Canadian GAAP. Accrued
liabilities included in accounts payable and accrued liabilities as at
December 31, 2008, were $1,712 million (2007 – $1,659 million). At
December 31, 2008, accrued liabilities in respect of PP&E totalled
$130 million (2007 – $133 million), accrued interest payable totalled
$142 million (2007 – $87 million), accrued liabilities related to payroll
totalled $388 million (2007 – $592 million), and CRTC commitments
totalled $64 million (2007 – $2 million).
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT 127
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(L) PENSIONS:
The following summarizes the additional disclosures required and
different pension-related amounts recognized or disclosed in the
Company’s accounts under united States GAAP:
Current service cost (employer portion)
Interest cost
Expected return on plan assets
Amortization:
Transitional asset
Realized gains included in income
Net actuarial loss
Net periodic pension cost under Canadian and united States GAAP
Accrued benefit asset under Canadian GAAP
One-time adjustment for change in measurement period to comply with FAS 158
Accumulated other comprehensive loss under united States GAAP, on a pre-tax basis
$
$
$
2008
2007
27 $
40
(43)
(10)
2
5
21 $
62 $
(6)
(101)
29
34
(37)
(10)
1
7
24
39
–
(115)
Net amount recognized in the consolidated balance sheets under united States GAAP
$
(45) $
(76)
In addition to the amounts disclosed above, under united States
GAAP, the net amount recognized in the consolidated balance
sheets related to the Company’s supplemental unfunded pension
benefits for certain executives was $27 million (2007 – $24 million).
The total accumulated other comprehensive income associated with
the supplemental plan amounts to nil (2007 – loss of $8 million), on
a pre-tax basis.
(M) RECENT U NITED S TATES ACCOUNTING PRONOUNCEMENTS :
In December 2007, the FASB issued FASB Statement No. 141R, Business
Combinations. This statement requires the acquirer to recognize
the assets acquired, liabilities assumed and any non-controlling
interest in the acquiree at fair value as of the acquisition date. The
statement is effective for the Company beginning January 1, 2009.
The Company is currently assessing the impact of this new standard
on its consolidated financial statements.
In December 2007, the FASB issued FASB Statement No. 160, Non-
controlling Interests in Financial Statements. This statement will
require non-controlling interest in a subsidiary to be reported in
equity in the consolidated financial statements. The statement is
effective for the Company beginning January 1, 2009. The Company
is currently assessing the impact of this new standard on its
consolidated financial statements, but it does not expect a material
impact on its financial position or results of operations.
In March 2008, the FASB issued FASB Statement No. 161, Disclosures
about Derivative Instruments and Hedging Activities. This new
statement enhances disclosures regarding an entity’s derivative
and hedging activities. This statement is effective for the Company
beginning January 1, 2009. The Company is currently assessing the
impact of this new standard.
In May 2008, the FASB issued FASB Statement No. 162, The Hierarchy
of Generally Accepted Accounting Principles. The statement
identifies the sources of accounting principles and the framework
for selecting the principles to be used in the preparation of financial
statements in accordance with generally accepted accounting
principles in the united States. This statement was effective for the
Company November 15, 2008, which is 60 days after the Securities
and Exchange Commission’s approval of Auditing Standard No. 6,
Evaluating Consistency of Financial Statements. There was no impact
to the Company on adoption of this statement.
128 ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
26. SUBSEqUENT E vENTS
(A)
In February 2009, the TSx accepted a notice filed by the
Company of its intention to renew its prior NCIB for a further
one-year period. The TSx notice provides that the Company may,
during the twelve-month period commencing February 20, 2009
and ending February 19, 2010, purchase on the TSx the lesser of
15 million Class B Non-Voting shares, representing approximately
2.9% of the issued and outstanding Class B Non-Voting shares, and
that number of Class B Non-Voting shares that can be purchased
under the NCIB for an aggregate purchase price of $300 million. The
actual number of Class B Non-Voting shares purchased, if any, and
the timing of such purchases will be determined by the Company
considering market conditions, share prices, its cash position, and
other factors.
(B)
In February 2009, the Company’s Board of Directors adopted a
dividend policy which increases the annual dividend rate from $1.00
to $1.16 per Class A Voting and Class B Non-Voting share effective
immediately to be paid in quarterly amounts of $0.29 per share.
Such quarterly dividends are only payable as and when declared by
the Board of Directors and there is no entitlement to any dividend
prior thereto.
In addition, on February 17, 2009, the Board of Directors declared
a quarterly dividend totalling $0.29 per share on each of its
outstanding Class B Non-voting shares and Class A Voting shares,
such dividend to be paid on April 1, 2009, to shareholders of record
on March 6, 2009, and is the first quarterly dividend to reflect the
newly increased $1.16 per share annual dividend level.
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT 129
CORPORATE AND SHAREHOLDER INFORMATION
CORPOR ATE OFFICES
Rogers Communications Inc.
333 Bloor Street East, 10th Floor
Toronto, Ontario M4W 1G9
416-935-7777 or www.rogers.com
CUSTOMER SERvICE AND
PRODUC T INFORMATION
800-462-4463 or www.rogers.com
STOCk E xCHANGE LISTINGS
Toronto Stock Exchange (TSx):
RCI.a – Class A Voting shares
(CuSIP # 775109101)
RCI.b – Class B Non-Voting shares
(CuSIP # 775109200)
New York Stock Exchange (NYSE):
RCI – Class B Non-Voting shares
(CuSIP # 775109200)
SHAREHOLDER SERvICES
If you are a shareholder and have inquiries
regarding your account, wish to change
your name or address, or have questions
about lost stock certificates, share transfers
or dividends, please contact our Transfer
Agent and Registrar:
Equity Index Inclusions
Dow Jones Telecom Titans 30 Index
FTSE Global Telecoms Index
S&P/TSx Composite Index
S&P/TSx 60 Index
S&P/TSx Capped Telecom Services Index
Computershare Investor Services Inc.
100 university Ave., 9th Floor, North Tower
Toronto, Ontario M5J 2Y1
800-564-6253 or
service@computershare.com
Multiple Mailings
If you receive duplicate shareholder mail-
ings from Rogers Communications, please
contact Computershare at 800-564-6253 or
service@computershare.com to consolidate
your holdings.
INvESTOR REL ATIONS
Institutional investors, security analysts
and others requiring additional financial
information can visit the Investor Relations
section of the rogers.com website
or contact:
Bruce M. Mann, CPA
Vice President, Investor Relations
416-935-3532 or
bruce.mann@rci.rogers.com
Dan Coombes
Director, Investor Relations
416-935-3550 or
dan.coombes@rci.rogers.com
Media inquiries: 416-935-7777
DEBT SECURITIES
For details of the public debt securities
of the Rogers companies, please refer to
the Debt Securities section under Investor
Relations at rogers.com.
INDEPENDENT AUDITORS
KPMG LLP
FORM 40 -F
Rogers files its annual report with the
Securities and Exchange Commission of
the u.S. on Form 40-F. A copy is available
on EDGAR at sec.gov and at the Investor
Relations section of the rogers.com website.
ON -LINE INFORMATION
Rogers is committed to open and full
financial disclosure and best practices
in corporate governance. We invite you
to visit the Investor Relations section of
rogers.com where you will find additional
information about our business and
growth opportunities including events and
presentations, news releases, regulatory
filings, governance practices, and our
continuous disclosure materials including
quarterly financial releases, Annual
Information Forms and Management
Information Circulars. Also, please take the
opportunity to subscribe to our news by
e-mail or RSS feeds to automatically receive
Rogers’ news releases electronically.
COMMON STOCk PRICE AND
DIvIDEND INFORMATION
2008
First quarter
Second quarter
Third quarter
Fourth q uarter
2007
First Quarter
Second Quarter
Third Quarter
Fourth Q uarter
Dividends
Closing Price RCI.b on TSx Declared
Per Share
$0.250
$0.250
$0.250
$0.250
High
$44.46
$46.06
$40.65
$36.74
Low
$33.26
$39.14
$33.62
$29.07
Dividends
Closing Price RCI.b on TSx Declared
Per Share
$0.040
$0.125
$0.125
$0.125
Low
$34.88
$38.05
$44.35
$41.56
High
$39.98
$47.19
$51.58
$48.91
2009 Expected Dividend Dates
Record Date*:
March 6, 2009
May 15, 2009
September 9, 2009
November 20, 2009
Payment Date*:
April 1, 2009
July 2, 2009
October 1, 2009
January 2, 2010
* Subject to Board approval
unless indicated otherwise, all dividends
paid by Rogers are Eligible Dividends as
defined by the Canada Revenue Agency.
ELEC TRONIC DELIvERY OF
SHAREHOLDER MATERIALS
Registered shareholders can receive
electronic notice of financial statements
and proxy materials and utilize the Internet
to submit proxies on-line by registering
at rogers.com/electronicdelivery. This
approach gets information to shareholders
more quickly than conventional mail and
helps Rogers protect the environment and
reduce printing and postage costs.
CORPOR ATE PHIL ANTHROPY
For information relating to Rogers’
various philanthropic endeavours, refer to
the “About Rogers” section of rogers.com
vERSION FR AN ç AISE DU R APPORT
Pour obtenir la version française du rapport
annuel de Rogers Communications, veuillez
vous adresser au Service des relations exté-
rieures en composant le 416-935-7777.
FORwARD - LOOk ING INFORMATION
This annual report includes forward-looking statements about the financial condition and prospects of Rogers Communications which involve significant risks and uncertainties
that are detailed in the “Risks and uncertainties Affecting our Businesses” and “Caution Regarding Forward-Looking Statements, Risks and Assumptions” sections of the MD&A
contained herein which should be read in full in conjunction with any other parts of this annual report.
This report is printed on FSC paper certified. The fibre used in the
manufacture of the stock, comes from well managed-managed forests,
controlled sources and recycled wood or fiber. This annual report is
recyclable.
170 trees
saved
(25 tons of
wood)
233,454 litres
of wastewater
flow saved
3,592 kgs.
solid waste
not generated
Greenhouse
gases prevented
6,739 kgs.
CO2 equivalent
51 kgs.
emissions not
generated
130 ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
© 2008 Rogers Communications Inc.
Other registered trademarks that
appear are the property of the
respective owners.
Design: Interbrand
Printed in Canada
ROGERS COMMUNICATIONS INC. AT A GLANCE
ROGERS COMMUNICATIONS
Rogers Communications (TSX: RCI; NYSE: RCI) is a diversified
Canadian communications and media company. As discussed in
the following pages, Rogers Communications is engaged in three
primary lines of business through its wholly owned subsidiaries
Rogers Wireless, Rogers Cable and Rogers Media.
Rogers Communications
REVENUE
($ in billions)
ADJUSTED OPER ATING PROFIT
($ in billions)
F Y20 08 REVENUE:
$11.3 billion
8.8
8.8
10.1
10.1
11.3
11.3
2.9
2.9
3.7
3.7
4.1
4.1
Rogers Wireless
Rogers Cable
Rogers Media
2006
2006
2007
2007
2008
2008
2006
2006
2007
2007
2008
2008
ROGERS WIRELESS
Rogers Wireless provides wireless voice and data communications
services across Canada to nearly 8 million customers under both the
Rogers Wireless and Fido brands. Proven to operate Canada’s most
reliable and fastest wireless networks, Rogers Wireless is Canada’s
largest wireless provider and the only carrier operating on the global
standard GSM and highly advanced 3G HSPA technology platforms.
Rogers Wireless is Canada’s leader in innovative wireless voice and
data services, and provides customers with the best and latest
wireless devices and applications. In addition to providing seamless
wireless roaming across the U.S. and more than 200 countries
internationally, Rogers Wireless also provides wireless broadband
services across Canada utilizing its 2.5 GHz fixed wireless spectrum.
ROGERS CABLE
Rogers Cable is Canada’s largest cable services provider, whose
territory covers approximately 3.5 million homes in Ontario,
New Brunswick and Newfoundland and Labrador with 65% basic
penetration of its homes passed. Its advanced digital two-way
hybrid fibre-coax network provides the leading selection of
on-demand and high-definition programming including an
extensive line-up of sports and multicultural programming.
Rogers Cable pioneered high-speed Internet access and now 68%
of its cable customers subscribe to its high-speed Internet service,
while Rogers Cable boasts 1.3 million residential and business tele-
phony subscribers. Rogers Cable also operates a retail distribution
chain which offers Rogers branded cable, home entertainment and
wireless products and services.
ROGERS MEDIA
Rogers Media is Canada’s premier combination of category-leading
radio and television broadcasting, publishing, sports entertainment
and on-line properties. Its Radio group operates 52 radio stations
across Canada, while its Television properties include the five-
station Citytv network; its five multicultural OMNI television
stations; Rogers Sportsnet, a specialty sports television service
licenced to provide regional sports programming across Canada;
and The Shopping Channel, Canada’s only nationally televised
shopping service. Media’s Publishing group produces 70 well-known
consumer magazines and trade and professional publications in
Canada. Media’s Sports Entertainment assets include the Toronto
Blue Jays Baseball Club and Rogers Centre, Canada’s largest sports
and entertainment facility.
For a detailed discussion of our financial and operating metrics and results, please see the accompanying MD&A later in this report.
REVENUE
($ in billions)
ADJUSTED OPER ATING PROFIT
($ in billions)
F Y20 08 REVENUE:
$6.3 billion
4.6
4.6
5.5
5.5
6.3
6.3
2.0
2.0
2.6
2.6
2.8
2.8
2006
2006
2007
2007
2008
2008
2006
2006
2007
2007
2008
2008
REVENUE
($ in billions)
ADJUSTED OPER ATING PROFIT
($ in billions)
F Y20 08 REVENUE:
$3.8 billion
3.2
3.2
3.6
3.6
3.8
3.8
0.9
0.9
1.0
1.0
1.2
1.2
2006
2006
2007
2007
2008
2008
2006
2006
2007
2007
2008
2008
REVENUE
($ in billions)
ADJUSTED OPER ATING PROFIT
($ in billions)
F Y20 08 REVENUE:
$1.5 billion
1.21
1.21
1.32
1.32
1.50
1.50
0.16
0.16
0.18
0.18
0.14
0.14
Core Media
86%
Sports Entertainment
14%
2006
2006
2007
2007
2008
2008
2006
2006
2007
2007
2008
2008
Wireless
54%
Cable
33%
Media
13%
Postpaid Voice
73%
Wireless Data
15%
Prepaid Voice
Equipment sales
4%
8%
Core Cable
44%
High-Speed Internet
18%
Business Solutions
14%
Home Phone
13%
Retail
11%
“The best is yet to come.”
Ted Rogers 1933-2008
INNOVATING FOR LIFE ™
R
O
G
E
R
S
C
O
M
M
U
N
I
C
A
T
I
O
N
S
I
N
C
.
2
0
0
8
A
N
N
U
A
L
R
E
P
O
R
T
T
S
X
:
R
C
I
N
Y
S
E
:
R
C
I
ROGERS.COM
ROGERS COMMUNIC ATIONS INC . AT A GL ANCE
DELIVERING RESULTS IN 2008
DOUBLE-DIGIT
REVENUE G ROW TH
FREE C ASH FLOW
GROW TH
DIVIDEND
INCREASES
GAIN HIGHER VALUE
WIRELESS S UBSCRIBERS
What We Said: Leverage networks,
channels and brand to deliver 11%
or greater revenue growth.
What We Said: Deliver 5% or
greater growth in consolidated
free cash flow.
What We Did: 12% consolidated
revenue growth with Wireless,
Cable Operations and Media all
growing at double-digit rates.
What We Did: Generated a 10%
increase in free cash flow growth.
What We Said: Increase dividends
consistently over time.
What We Did: Doubled annual
dividend per share from $0.50 to
$1.00 in 2008.
What We Said: Continued strong
wireless subscriber growth but with
a focus on postpaid subscribers.
What We Did: Added 604,000
wireless subscribers with 89% of
net additions being on higher value
postpaid plans.
GROW W IRELESS
DATA R EVENUE
What We Said: Strong double-digit
wireless data growth to support
continued ARPU expansion.
What We Did: 39% wireless data
revenue growth with data as a
percent of network revenue
expanding to 16% from 13% in 2007.
FASTEST AND MOST
RELIABLE WIRELESS
NET WORkS
What We Said: Significantly expand
coverage of next-generation HSPA
wireless data network across
Canada.
What We Did: Expanded HSPA
wireless network to cover 76% of
the population while increasing
data speeds to 7.2 Mbps.
GROW C ABLE
TELEPHONY BUSINESS
EXPAND C ABLE
MARGINS
What We Said: Continued rapid
growth in cable telephony
subscribers during 2008.
What We Did: Expanded cover-
age area to 95% of cable territory
and grew subscriber base 28% to
840,000.
What We Said: Leverage growth
with efficiencies to drive at least
100bp of adjusted operating profit
margin expansion at Cable.
What We Did: 16% Cable
Operations adjusted operating
profit growth with nearly 200 basis
point margin expansion.
FINANCIAL HIGHLIGHTS
(In millions of dollars, except per share data)
Revenue
Adjusted operating profit
Adjusted operating profit margin
Adjusted net income (loss)
Adjusted basic earnings (loss) per share
Annualized dividend rate at year-end
Total assets
Long-term debt (includes current portion)
Shareholders‘ equity
Number of employees
TOTAL SHAREHOLDER RETURN
2 0 0 8
$ 11,335
4,060
36%
1,260
1.98
1.00
17,093
8,507
4,727
29,200
$
2 0 0 7
10,123
3,703
37%
1,066
1.67
0.50
15,325
6,033
4,624
27,900
$
2 0 0 6
8,838
2,942
33%
684
1.08
0.16
14,105
6,988
4,200
25,700
$
2 0 0 5
7,334
2,252
31%
47
0.08
0.075
13,834
7,739
3,528
22,600
2 0 0 4
$ 5,514
1,752
32%
(32)
(0.07)
0.05
13,273
8,542
2,385
19,300
TEN -YEAR COMPAR ATIVE TOTAL RETURN: 1998 –20 08
FIVE-YEAR COMPAR ATIVE TOTAL RETURN: 20 03 –20 08
464%
68%
(13%)
52%
(46%)
259%
23%
(10%)
49%
20%
BRINGING
YOUR WORLD
TOGETHER
INNOVATION IN COMMUNICATIONS, INFORMATION AND ENTERTAINMENT
ROGERS COMMUNICATIONS INC. 2008 ANNUAL REPORT
RCI.b on TSX
S&P/TSX
COMPOSITE
S&P 500
TSX TELECOM
INDEX
S&P 500
TELECOM INDEX
RCI.b on TSX
S&P/TSX
COMPOSITE
S&P 500
TSX TELECOM
INDEX
S&P 500
TELECOM INDEX
For a detailed discussion of our financial and operating metrics and results, please see the accompanying MD&A later in this report.